When calculating the contribution of the equity portfolio to Foster’s net income for the year (Question 1) why don’t we take off the $187.5 thousand of NI related to the sale of goods to Foster during the year from the $15,000.00 of Foster’s share of investee’s net income for the year. Data are below.
Foster Inc. Equity Portfolio
(year end, C$ thousands)
Characteristic
Security
Alton Inc.
Barker Inc.
Cosmic Inc.
Darnell Inc. (see notes)
Classification
Fair value through profit or loss (held for trading)
Available-for-sale
Available for sale
Associated company
Cost,
beginning of year
$100,000
$150,000
$250,000
$500,000
Market value,
end of year
$97,000
$151,000
$257,000
$506,000
Dividends received during the year
$1,000
$2,000
$3,000
$4,000
Foster’s share of investee’s net income for the year
$15,000
Notes:
· Darnell Inc. has $2 billion in total assets.
· Foster owns 40% of Darnell’s equity and has representation on Darnell’s Board of Directors but does not have effective control.
· At time of acquisition, the fair value of all assets and liabilities was equal to their book value.
· Darnell reported net income of $187.5 thousand on sale of goods to Foster during the year.