Investment in Online Confections of a Chocoholic: A Financial Analysis

by | Jul 20, 2024 | Accounting

Scenario
You own a successful chocolate company and would like to expand your business and invest in an online candy company. Youve found the perfect company, Online Confections of a Chocoholic. You have reviewed the 10-K report and financial statements. You are satisfied with this choice as an investment. Now, you must decide how much you want to invest in Online Confections of a Chocoholic. You have a choice to own as much as you want to invest.

Once you have decided how much you want to own of Online Confections of a Chocoholic, go ahead and make the purchase. Youll now have to think about journal entries and disclosure statements for your new online-based business.

Directions
Determine how much to invest in this new online candy company. Since this is a fictional company, there are no 10-K reports available. Therefore, you will have to decide on a fictional amount to invest. Use the accounting methods and principles from the Financial Accounting Standards Board (FASB) Accounting Standards Codification and Generally Accepted Accounting Principles (GAAP), linked in the Supporting Materials section, to apply the correct method to the given acquisition and to summarize basic journal entries based on the amount invested.

Specifically, you must address the following rubric criteria:

Rationale

Explain the rationale for the accounting method that would be used to consolidate if you decided to acquire 20% or less of Online Confections of a Chocoholic.
Explain the rationale for the accounting method that would be used to consolidate if you decided to acquire between 20% and 50% of Online Confections of a Chocoholic.
Explain the rationale for the accounting method that would be used to consolidate if you decided to acquire more than 50% of the company.
Journal Entries

Summarize the basic journal entries needed for the current period (at the time of investment) and end of year if 15% of Online Confections of a Chocoholic was purchased. Include the following details in your response:
State the exact dollar amount of the investment.
Note the accounts that should be used in the journal entries.
Use debits and credits appropriately.
Summarize the basic journal entries needed for the current period (at the time of investment) and end of year if 33.3% of Online Confections of a Chocoholic was purchased. Include the following details in your response:
State the exact dollar amount of the investment.
Note the accounts that should be used in the journal entries.
Use debits and credits appropriately.
Summarize the basic journal entries needed for the current period (at the time of investment) and end of year if 75% of Online Confections of a Chocoholic was purchased. Include the following details in your response:
State the exact dollar amount of the investment.
Note the accounts that should be used in the journal entries.
Use debits and credits appropriately.
Disclosure Notes

Explain the types of information that would be included in Online Confections of a Chocoholics disclosure notes.

 

Sample solution

Dante Alighieri played a critical role in the literature world through his poem Divine Comedy that was written in the 14th century. The poem contains Inferno, Purgatorio, and Paradiso. The Inferno is a description of the nine circles of torment that are found on the earth. It depicts the realms of the people that have gone against the spiritual values and who, instead, have chosen bestial appetite, violence, or fraud and malice. The nine circles of hell are limbo, lust, gluttony, greed and wrath. Others are heresy, violence, fraud, and treachery. The purpose of this paper is to examine the Dante’s Inferno in the perspective of its portrayal of God’s image and the justification of hell. 

In this epic poem, God is portrayed as a super being guilty of multiple weaknesses including being egotistic, unjust, and hypocritical. Dante, in this poem, depicts God as being more human than divine by challenging God’s omnipotence. Additionally, the manner in which Dante describes Hell is in full contradiction to the morals of God as written in the Bible. When god arranges Hell to flatter Himself, He commits egotism, a sin that is common among human beings (Cheney, 2016). The weakness is depicted in Limbo and on the Gate of Hell where, for instance, God sends those who do not worship Him to Hell. This implies that failure to worship Him is a sin.


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God is also depicted as lacking justice in His actions thus removing the godly image. The injustice is portrayed by the manner in which the sodomites and opportunists are treated. The opportunists are subjected to banner chasing in their lives after death followed by being stung by insects and maggots. They are known to having done neither good nor bad during their lifetimes and, therefore, justice could have demanded that they be granted a neutral punishment having lived a neutral life. The sodomites are also punished unfairly by God when Brunetto Lattini is condemned to hell despite being a good leader (Babor, T. F., McGovern, T., & Robaina, K. (2017). While he commited sodomy, God chooses to ignore all the other good deeds that Brunetto did.

Finally, God is also portrayed as being hypocritical in His actions, a sin that further diminishes His godliness and makes Him more human. A case in point is when God condemns the sin of egotism and goes ahead to commit it repeatedly. Proverbs 29:23 states that “arrogance will bring your downfall, but if you are humble, you will be respected.” When Slattery condemns Dante’s human state as being weak, doubtful, and limited, he is proving God’s hypocrisy because He is also human (Verdicchio, 2015). The actions of God in Hell as portrayed by Dante are inconsistent with the Biblical literature. Both Dante and God are prone to making mistakes, something common among human beings thus making God more human.

To wrap it up, Dante portrays God is more human since He commits the same sins that humans commit: egotism, hypocrisy, and injustice. Hell is justified as being a destination for victims of the mistakes committed by God. The Hell is presented as being a totally different place as compared to what is written about it in the Bible. As a result, reading through the text gives an image of God who is prone to the very mistakes common to humans thus ripping Him off His lofty status of divine and, instead, making Him a mere human. Whether or not Dante did it intentionally is subject to debate but one thing is clear in the poem: the misconstrued notion of God is revealed to future generations.

 

References

Babor, T. F., McGovern, T., & Robaina, K. (2017). Dante’s inferno: Seven deadly sins in scientific publishing and how to avoid them. Addiction Science: A Guide for the Perplexed, 267.

Cheney, L. D. G. (2016). Illustrations for Dante’s Inferno: A Comparative Study of Sandro Botticelli, Giovanni Stradano, and Federico Zuccaro. Cultural and Religious Studies, 4(8), 487.

Verdicchio, M. (2015). Irony and Desire in Dante’s” Inferno” 27. Italica, 285-297.

Sample Answer

Sample Answer

 

Investment in Online Confections of a Chocoholic: A Financial Analysis

Introduction

As the owner of a successful chocolate company, expanding through an investment in Online Confections of a Chocoholic presents a promising opportunity. In this essay, I will outline the rationale for different accounting methods based on varying ownership percentages, summarize the necessary journal entries for different investment amounts, and identify disclosure notes relevant to this acquisition.

Rationale for Accounting Methods

1. Acquisition of 20% or Less

If I were to acquire 20% or less of Online Confections of a Chocoholic, the appropriate accounting method according to the FASB and GAAP would be the cost method. Under this approach, the investment would be recorded at cost on the balance sheet. The rationale behind this is that such a minority stake does not provide significant influence over the company’s operational or financial policies. Therefore, it is treated as a financial asset, with income recognized only when dividends are declared.

2. Acquisition of Between 20% and 50%

For an investment between 20% and 50%, the equity method would be used. This method allows for the recognition of my proportional share of Online Confections’ profits or losses. The rationale is that owning between 20% and 50% typically indicates significant influence but not control. Under the equity method, the investment is initially recorded at cost and subsequently adjusted for my share of the investee’s earnings or losses, as well as any dividends received.

3. Acquisition of More Than 50%

In the case of acquiring more than 50%, I would have control over Online Confections of a Chocoholic, necessitating the use of the consolidation method. This method involves combining the financial statements of both companies into one set of financial statements. The rationale is that owning more than 50% grants full control over operational and financial decisions, necessitating a comprehensive representation of its financial position and performance.

Journal Entries

Investment of 15% (Amount: $150,000)

At the time of investment:

Date Account Titles Debit Credit
MM/DD/YYYY Investment in Online Confections $150,000
Cash $150,000

End of Year (assuming no dividends were received):

Date Account Titles Debit Credit
MM/DD/YYYY No entry required for cost method

Investment of 33.3% (Amount: $333,000)

At the time of investment:

Date Account Titles Debit Credit
MM/DD/YYYY Investment in Online Confections $333,000
Cash $333,000

End of Year (assuming Online Confections reports a profit of $100,000):

Date Account Titles Debit Credit
MM/DD/YYYY Investment in Online Confections $33,300
Equity Earnings $33,300

Investment of 75% (Amount: $750,000)

At the time of investment:

Date Account Titles Debit Credit
MM/DD/YYYY Investment in Online Confections $750,000
Cash $750,000

End of Year (assuming Online Confections reports a profit of $200,000):

Date Account Titles Debit Credit
MM/DD/YYYY Investment in Online Confections $150,000
Equity Earnings $150,000

Date Account Titles Debit Credit
MM/DD/YYYY Assets (various) $750,000
Liabilities (various) $750,000

Disclosure Notes

The disclosure notes for Online Confections of a Chocoholic should include:

– Nature of Relationship: Explanation of my ownership stake and its implications.
– Investment Valuation: Details on how the investment was valued and the accounting methods used.
– Financial Performance: Summary of how Online Confections has performed financially during the reporting period.
– Contingencies and Risks: Information on any contingent liabilities or risks associated with the investment.
– Dividends Paid: Disclosure on any dividends received during the reporting period.

Conclusion

Investing in Online Confections of a Chocoholic represents an exciting opportunity for growth. By understanding the appropriate accounting methods and preparing detailed journal entries and disclosure notes, I can ensure transparent financial reporting and effective management of this new investment.

 

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