the following balance sheets have been prepared as at december 31 year 5 for kay cor 4375402

The following balance sheets have been prepared as at December 31, Year 5, for Kay Corp. and Adams Co. Ltd.: Additional Information • Kay acquired its 40% interest in Adams for $360,000 in Year 1, when Adams’s retained earnings amounted to $170,000. The acquisition differential on that date was fully amortized by the end of Year 5. • In Year 4, Kay sold land to Adams and recorded a gain of $60,000 on the trans-action. Adams is still using this land. • The December 31, Year 5, inventory of Kay contained a profit recorded by Adams amounting to $35,000. • On December 31, Year 5, Adams owes Kay $29,000. • Kay has used the cost method to account for its investment in Adams. • Use income tax allocation at a rate of 40%, but ignore income tax on the acquisition differential. Required: (a) Prepare three separate balance sheets for Kay as at December 31, Year 5, assuming that the investment in Adams is a (i) control investment; *(ii) joint venture investment, and is reported using proportionate consolidation; and (iii) significant influence investment. (b) Calculate the debt-to-equity ratio for each of the balance sheets in Part (a). Which reporting method presents the strongest position from a solvency point of view? Briefly explain. View Solution:
The following balance sheets have been prepared as at December

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