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The following information relates to Questions 1-6 Cinnamon, Inc. is a diversified manufacturing company headquartered in the United King- dom. It complies with IFRS. In 2009, Cinnamon held a 19 percent passive equity ownership interest in Cambridge Processing that was classified as available-for-sale. During the year, the value of this investment rose by £2 million. In December 2009, Cinnamon announced that it would be increasing its ownership interest to 50 percent effective 1 January 2010 through a cash purchase. Cinnamon and Cambridge have no intercompany transactions. Peter Lubbock, an analyst following both Cinnamon and Cambridge, is curious how the increased stake will affect Cinnamon's consolidated financial statements. He asks Cinnamon's CFO how the company will account for the investment, and is told that the decision has not yet been made. Lubbock decides to use his existing forccasts for both companies' financial statements to compare the outcomes of alternative accounting treatments. Lubbock assembles abbreviated financial statement data for Cinnamon (Exhibit 1) and Cambridge (Exhibit 2) for this purpose. EXHIBIT 1 Selected Financial Statement Information for Cinnamon, Inc. (E Millions) Year ending 31 December 2010 2009 Revenue 1,400 1,575 Operating income 126 142 Net income 31 December 62 69 2009 2010 Total assets 1,170 1,317 Shareholders' equity 616 685 "Estimates made prior to announcement of increased stake in Cambridge. Chapter 15 Intercorporate Investments 791 EXHIBIT 2 Selected Financial Statement Information for Cambridge Processing (E Millions) Year ending 31 December 2009 2010 Revenue 1,000 1,100 Operating income 80 88 Net income 40 44 Dividends paid 20 22 31 December 2009 2010 Total assets 800 836 Shareholders' equity 440 462 "Estimates made prior to announcement of increased stake by Cinnamon.

The following information relates to Questions 1-6 Cinnamon, Inc. is a diversified manufacturing company headquartered in the United King- dom. It complies with IFRS. In 2009, Cinnamon held a 19 percent passive equity ownership interest in Cambridge Processing that was classified as available-for-sale. During the year, the value of this investment rose by £2 million. In December 2009, Cinnamon announced that it would be increasing its ownership interest to 50 percent effective 1 January 2010 through a cash purchase. Cinnamon and Cambridge have no intercompany transactions. Peter Lubbock, an analyst following both Cinnamon and Cambridge, is curious how the increased stake will affect Cinnamon's consolidated financial statements. He asks Cinnamon's CFO how the company will account for the investment, and is told that the decision has not yet been made. Lubbock decides to use his existing forccasts for both companies' financial statements to compare the outcomes of alternative accounting treatments. Lubbock assembles abbreviated financial statement data for Cinnamon (Exhibit 1) and Cambridge (Exhibit 2) for this purpose. EXHIBIT 1 Selected Financial Statement Information for Cinnamon, Inc. (E Millions) Year ending 31 December 2010 2009 Revenue 1,400 1,575 Operating income 126 142 Net income 31 December 62 69 2009 2010 Total assets 1,170 1,317 Shareholders' equity 616 685 "Estimates made prior to announcement of increased stake in Cambridge. Chapter 15 Intercorporate Investments 791 EXHIBIT 2 Selected Financial Statement Information for Cambridge Processing (E Millions) Year ending 31 December 2009 2010 Revenue 1,000 1,100 Operating income 80 88 Net income 40 44 Dividends paid 20 22 31 December 2009 2010 Total assets 800 836 Shareholders' equity 440 462 "Estimates made prior to announcement of increased stake by Cinnamon.

Financial Accounting
Financial Accounting
14th Edition
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Carl Warren, Jim Reeve, Jonathan Duchac
Chapter15: Investments And Fair Value Accounting
Section: Chapter Questions
Problem 3PA
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In 2010, if Cinnamon is deemed to have control over Cambridge, it will most likely
account for its investment in Cambridge using:
A . the equity method.
B . the acquisition method.
C . proportionate consolidation

The following information relates to Questions 1-6 Cinnamon, Inc. is a diversified manufacturing company headquartered in the United King- dom. It complies with IFRS. In 2009, Cinnamon held a 19 percent passive equity ownership interest in Cambridge Processing that was classified as available-for-sale. During the year, the value of this investment rose by £2 million. In December 2009, Cinnamon announced that it would be increasing its ownership interest to 50 percent effective 1 January 2010 through a cash purchase. Cinnamon and Cambridge have no intercompany transactions. Peter Lubbock, an analyst following both Cinnamon and Cambridge, is curious how the increased stake will affect Cinnamon's consolidated financial statements. He asks Cinnamon's CFO how the company will account for the investment, and is told that the decision has not yet been made. Lubbock decides to use his existing forccasts for both companies' financial statements to compare the outcomes of alternative accounting treatments. Lubbock assembles abbreviated financial statement data for Cinnamon (Exhibit 1) and Cambridge (Exhibit 2) for this purpose. EXHIBIT 1 Selected Financial Statement Information for Cinnamon, Inc. (E Millions) Year ending 31 December 2010 2009 Revenue 1,400 1,575 Operating income 126 142 Net income 31 December 62 69 2009 2010 Total assets 1,170 1,317 Shareholders' equity 616 685 "Estimates made prior to announcement of increased stake in Cambridge. Chapter 15 Intercorporate Investments 791 EXHIBIT 2 Selected Financial Statement Information for Cambridge Processing (E Millions) Year ending 31 December 2009 2010 Revenue 1,000 1,100 Operating income 80 88 Net income 40 44 Dividends paid 20 22 31 December 2009 2010 Total assets 800 836 Shareholders' equity 440 462 "Estimates made prior to announcement of increased stake by Cinnamon.
Transcribed Image Text:The following information relates to Questions 1-6 Cinnamon, Inc. is a diversified manufacturing company headquartered in the United King- dom. It complies with IFRS. In 2009, Cinnamon held a 19 percent passive equity ownership interest in Cambridge Processing that was classified as available-for-sale. During the year, the value of this investment rose by £2 million. In December 2009, Cinnamon announced that it would be increasing its ownership interest to 50 percent effective 1 January 2010 through a cash purchase. Cinnamon and Cambridge have no intercompany transactions. Peter Lubbock, an analyst following both Cinnamon and Cambridge, is curious how the increased stake will affect Cinnamon's consolidated financial statements. He asks Cinnamon's CFO how the company will account for the investment, and is told that the decision has not yet been made. Lubbock decides to use his existing forccasts for both companies' financial statements to compare the outcomes of alternative accounting treatments. Lubbock assembles abbreviated financial statement data for Cinnamon (Exhibit 1) and Cambridge (Exhibit 2) for this purpose. EXHIBIT 1 Selected Financial Statement Information for Cinnamon, Inc. (E Millions) Year ending 31 December 2010 2009 Revenue 1,400 1,575 Operating income 126 142 Net income 31 December 62 69 2009 2010 Total assets 1,170 1,317 Shareholders' equity 616 685 "Estimates made prior to announcement of increased stake in Cambridge. Chapter 15 Intercorporate Investments 791 EXHIBIT 2 Selected Financial Statement Information for Cambridge Processing (E Millions) Year ending 31 December 2009 2010 Revenue 1,000 1,100 Operating income 80 88 Net income 40 44 Dividends paid 20 22 31 December 2009 2010 Total assets 800 836 Shareholders' equity 440 462 "Estimates made prior to announcement of increased stake by Cinnamon.
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