Chapter 2, Problem 1UTI

(a)

To determine

Concept Introduction: The ethical dilemmas that the accountants may face sometimes include difference of opinions, confidentiality in payroll, illegal activities and pressure from the management to improve earnings and clients who may request to manipulate financial statements.

To Identify: The accounting issues that surround the record of income in future if Jacobson buys 15% of Biltrite’s outstanding shares.

Answer to Problem 1UTI

Jacobson can take this opportunity.

Explanation of Solution

Jacobson has a passive type of ownership. In forthcoming periods, Jacobson will record dividend income for only 15% of Biltrite’s declared dividends only. It will also require Jacobson to adjust the investment as per the market value at the end of each period.

(b)

To determine

Concept Introduction: The ethical dilemmas that accountants may face sometimes include difference of opinion, confidentiality in payroll, illegal activities and pressure from the management to improve earnings and clients who may request to manipulate the financial statements.

To Identify: The accounting issues that surround the record of income in future period if Jacobson buys 40% of Biltrite’s outstanding shares.

Answer to Problem 1UTI

Jacobson can take this opportunity.

Explanation of Solution

Jacobson will have the influential part of ownership. In the future period, 40% of Biltrite’s net income will be taken as the investment income. On the other hand, the dividends declared by Biltrite Company will impact the investment account but not the investment income account.

(c)

To determine

Concept Introduction: The ethical dilemmas that the accountants may face sometimes include difference of opinions, confidentiality in payroll, illegal activities and pressure from the management to improve the earnings and the clients who may sometimes request to manipulate the financial statements.

To Identify: The accounting issues that surround the record of income in future period if Jacobson buys 100% of Biltrite’s outstanding shares.

Answer to Problem 1UTI

The dividends declared by the Biltrite will not impact the income of Jacobson.

Explanation of Solution

Jacobson will have the ownership. In the future period, 100% of the Biltrite’s net income will be taken as the investment income. Biltrite Company’s nominal balances of accounts may be added to the nominal account of Jacobson.

(d)

To determine

Concept Introduction: The ethical dilemmas that the accountants may face sometimes include difference of opinions, confidentiality in payroll, illegal activities and pressure from the management to improve the earnings and the clients who may sometimes request to manipulate the financial statements.

To Identify: The accounting issues that surrounds the record of income in future period if Jacobson buys 80% of Biltrite’s outstanding shares.

Answer to Problem 1UTI

The dividends declared by the Biltrite will not impact the income of Jacobson.

Explanation of Solution

Jacobson will have the ownership. In future, 100% of Biltrite’s net income will be taken as investment income. The Biltrite’s nominal balance of accounts may be added to the nominal account of Jacobson. There will be consolidated net income followed by the distribution of non-controlling interest equal to 20% of Biltrite’s income. This is because Biltrite’s nominal balance accounts were added to the Jacobson nominal account.