Earnings per share; reporting method for 20-50% ownership
1. At December 21, 2004, Marshall Company had 500,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 100,000 of which were issued on October 1, 2004. Net income for the year ended December 31, 2004, was $765,000. What should be Marshall’s 2004 earnings per common share, round to the nearest penny?
2. When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies?
a. the investor should always use the equity method to account for its investments
b. The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise ‘significant influence” over the investee.
c. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise “significant influence” over investee.
d. The investor should always use the fair value method to account for its investment.