08 May HAS THE INVESTOR SIGNED AN AGREEMENT SURRENDERING HIS/HER ABILITY TO EXERCISE SIGNIFICANT INFLUENCE?
Based on the information given above answer the following questions:As the chief finance officer (CFO) for Roberts Corporation draft a memorandum to the president of the company in which you recommend the appropriate accounting and reporting method for the investment in the voting stock of William Company. Since the president of Roberts Corporation does not have a technical accounting background be sure that you explain the alternatives to accounting for investments in equity securities and your recommended approach in language that he or she can clearly understand. While drafting the memorandum consider the following:Use of the equity method is indicated based upon the 40 percent ownership interest. Significant influence normally is assumed when more than 20 percent ownership is held.Other factors to consider might include:Is the investee under the control of the courts or other parties as a result of filing for reorganization or entering into liquidation procedures?Does the investor have representation on the board of directors or has it attempted to gain representation and been unable to do so?Has the investee initiated litigation or complaints challenging the investor’s ability to exercise significant influence?Has the investor signed an agreement surrendering his/her ability to exercise significant influence?Is majority ownership concentrated in a small group that operates the company without regard of the wishes of the investor?Is the investor able to acquire the information needed to use equity method reporting?Qualitative parameters include brevity and clarity.
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