CC16 COOKIE CREATIONS
(a) 1. The amount of influence you would have in The Beanery would
determine how you would account for the investment. Given that you
would own 30% of the common shares of the Beanery, it would be
assumed (unless there was evidence to the contrary) that you could
exert significant influence over the day-to-day operations of the
business. This is especially so given the small number of
stockholders. Significant influence over an investee may also result
from representation on the board of directors, participation in policy-
making processes, material intercompany transactions, interchange of
managerial personnel, or technological dependency.
2. One of the major advantages of going ahead with this investment
would be the strategic advantage of the horizontal and vertical
CC16 (Continued)
(a) (Continued)
3. There would be disadvantages associated with this investment as
well. For example, there may be a significant time investment required
by both of you especially since both of the Thornton sisters are very
busy and would like the investor to take over some of the
(b)
Stock Investments ………………………………………… 15,000
Cash ……………………………………………………. 15,000
(c)
Cost Method
Equity Method
Stock Investments ………………………………………… 15,000
Revenue from Stock Investments
CC16 (Continued)
(d) Because the investment in The Beanery is a strategic investment, it
would be classified as a long-term investment in the long-term
investments section of Cookie & Coffee Creations’ balance sheet. If the