| Course | AC302 Intermediate Accounting III |
|---|---|
| Unit | Unit 7 |
| Paper type | Investment classification problem |
| Length | About 690 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Accounting |
| Updated | October 2026 |
Free sample paper for AC302 Unit 7
A 12 Percent Stake on the Equity Method and a 28 Percent Stake at Cost: A Unit 7 Investment Classification Problem
[Student Name]
Purdue University Global
AC302: Intermediate Accounting III
Unit 7 Investment Classification Problem
[Instructor Name]
[Date]
Calder Voss Engineering, its six holdings and every amount are composite; the opinions, interpretation, update and textbook cited are real.
Decision Table
1. Treasury notes, bought in November to sell within months to fund a project: debt, held for trading. Fair value through net income.
2. Corporate bonds with no plan to sell but no commitment to hold: debt, available for sale. Carried at fair value; the swings bypass net income and collect in other comprehensive income.
3. Municipal bonds Calder Voss intends and is able to hold to maturity: debt, held to maturity. Amortized cost.
4. A 12 percent interest in Lumawave Sensors, where Calder Voss names one of five directors under a supply contract that provides most of Lumawave's sales: significant influence. Equity method.
5. A 28 percent interest in a startup controlled by a 65 percent owner who refused Calder Voss a board seat and denies it information beyond what other shareholders receive: no significant influence. Equity security without a readily determinable fair value.
6. A 4 percent holding of a listed pump manufacturer whose shares trade daily on an exchange: an equity security with a quoted price. Fair value through net income.
Why the Percentages Mislead
Twenty percent is a presumption, not a rule. Ownership below 20 percent is presumed to lack significant influence, and ownership of 20 percent or more is presumed to have it, but either presumption gives way to evidence (Accounting Principles Board, 1971). Board representation, material transactions between the companies and interchange of managers all point to influence. Lumawave depends on Calder Voss for most of its sales, and Calder Voss sits on its board, so influence exists at 12 percent.
The startup is the reverse. The interpretation that followed the equity method opinion lists signs that an investor cannot exercise influence even above 20 percent, including opposition from the investee, a majority owner who runs the company without regard to the investor, and a failure to obtain board representation (Financial Accounting Standards Board, 1981). All three apply.
Calder Voss uses the equity method for the smaller stake and not for the larger one because influence is judged by what the investor can actually do, a seat on Lumawave's board and its main customer relationship, not by the share of stock it holds.
Measurement at December 31
1. Treasury notes: cost $500,000; fair value $503,000. Unrealized gain of $3,000 to net income.
2. Corporate bonds: cost $400,000; fair value $412,500. Unrealized gain of $12,500 to other comprehensive income.
3. Municipal bonds: amortized cost $248,600 after premium amortization. No fair value change recognized.
4. Lumawave: cost $960,000, plus 12 percent of its $900,000 net income, $108,000, less 12 percent of its $300,000 dividends, $36,000. Carrying amount: $1,032,000.
5. Startup: cost $700,000. No impairment indicators and no observable price for identical or similar shares during the year, so the carrying amount stays $700,000 under the measurement alternative (Financial Accounting Standards Board, 2016).
6. Pump manufacturer: cost $300,000; fair value $276,000. Unrealized loss of $24,000 to net income. Dividends received, $9,000, to income.
Entries for the Two Equity Interests
Lumawave: Equity Investment, debit $108,000; Investment Income, credit $108,000. Cash, debit $36,000; Equity Investment, credit $36,000. Startup: no entry at year end. If the startup later sells shares to a new investor at a known price, Calder Voss will remeasure its stake to that observable price through net income.
Effect on the Year's Results
Net income: trading gain $3,000, equity-method income $108,000, loss on the pump shares $24,000 and dividends $9,000, a net $96,000 before interest on the three debt holdings. Other comprehensive income: $12,500 on the corporate bonds.
The total is modest, but the classification choices move it. Had the startup been accounted for by the equity method, Calder Voss would have recorded 28 percent of its results, which were a loss of $400,000, cutting net income by another $112,000 (Kieso et al., 2019).
References
Accounting Principles Board. (1971). The equity method of accounting for investments in common stock (APB Opinion No. 18). American Institute of Certified Public Accountants.
Financial Accounting Standards Board. (1981). Criteria for applying the equity method of accounting for investments in common stock: An interpretation of APB Opinion No. 18 (FASB Interpretation No. 35). https://www.fasb.org
Financial Accounting Standards Board. (2016). Financial instruments, overall (Subtopic 825-10): Recognition and measurement of financial assets and financial liabilities (Accounting Standards Update No. 2016-01). https://www.fasb.org
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (17th ed.). Wiley.
AC302 Unit 7 instructions, in plain terms
The seventh unit of AC302 gives a set of investments and asks for classification, measurement and the effect on the statements. Separate debt from equity first. Classify debt as trading, available for sale or held to maturity by intent and ability. For equity, decide whether the investor has significant influence, testing the 20 percent presumption against the evidence rather than applying it mechanically. Equity without influence goes to fair value through net income, or to the measurement alternative if no readily determinable fair value exists. Measure each holding at year end and record the equity-method entries. Total the effect on net income and on other comprehensive income. Explain any holding whose classification contradicts its percentage. A closing note on how a different classification would change income shows why the judgment matters. Cite APB 18, FIN 35 and ASU 2016-01 in APA 7.
How the AC 302 Unit 7 example is put together
The sample opens with a six-row decision table giving each holding's facts and category. A section on why percentages mislead explains the 20 percent presumption and applies the influence indicators to the sensor supplier, then the FIN 35 indicators to the startup. The highlighted sentence resolves the inversion. Measurement follows for each holding: a $3,000 trading gain, a $12,500 gain to other comprehensive income, amortized cost of $248,600 for the municipal bonds, $1,032,000 for the equity-method stake after a $108,000 share of income and $36,000 of dividends, $700,000 for the startup under the measurement alternative, and a $24,000 loss on the pump shares. Entries for the two equity interests follow. The effects section totals $96,000 to net income and shows that equity-method treatment of the startup would have cut income by $112,000.
AC302 Unit 7 rubric: what earns full points
The AC302 grader starts with how each of the six holdings was classified and wants the reason written beside the label. The influence judgment for stakes near or across 20 percent is the key test of the unit. Measurement is checked holding by holding, including where each fair value change is reported. Equity-method computations must add the share of income and subtract dividends. The measurement alternative must be applied correctly to the equity without a market price. Entries are a separate scoring point. The total effect on net income and other comprehensive income shows the student can connect the holdings to the statements. A sensitivity comment on a different classification earns analytical credit. A decision table makes the grading fast. For Purdue Global, APA 7 references to APB 18, FIN 35 and the 2016 update support the judgments.
AC302 Unit 7 help: mistakes that cost points
Investment problems most often go wrong when students classify by percentage alone, giving the equity method to the 28 percent stake and fair value to the 12 percent one. Others still use the available-for-sale category for equity securities, which the 2016 update removed. Dividends from equity-method investees are recorded as income. Unrealized gains on available-for-sale debt go to net income. Held-to-maturity bonds are remeasured to fair value. The measurement alternative is confused with cost forever, ignoring observable price changes and impairment. The total effect on income is skipped. If your problem includes a stake that crosses into control, an impairment of a debt security or a reclassification between categories, our accountants can classify and measure each holding with the reasoning written out.
Get an AC302 Unit 7 example written to your instructions
List every holding in your Unit 7 problem with its percentage and whatever the problem says about intent, board seats, contracts or quoted prices, and attach the rubric and any textbook edition the section uses. Classification, measurement schedules and the income summary are returned in 24-48h, built on your holdings. There is no charge for a first custom sample. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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AC302 Unit 7 questions, answered
What happened to available-for-sale equity securities?
The category was removed for equity by the 2016 financial instruments update, effective for most public companies in 2018. Equity securities with a readily determinable fair value now go to fair value through net income, and those without one may use the measurement alternative: cost, less impairment, adjusted for observable price changes in orderly transactions. Older problems may still use the retired category, and the sample flags that difference.
Where can I find a free AC302 Unit 7 sample paper?
This page holds a complete AC302 Unit 7 investment classification problem for a composite engineering firm, sorting six holdings by intent and influence, measuring each, recording equity-method entries and totaling the income effects, with APA 7 references.
Why does a 12 percent stake use the equity method in AC302 Unit 7?
Calder Voss names a director and supplies a contract that provides most of the sensor maker's sales. Those facts show significant influence, which overrides the presumption that a stake under 20 percent has none.
Why is the 28 percent stake not on the equity method in AC302 Unit 7?
A 65 percent owner runs the startup, refused Calder Voss a seat and limits its information. Those signs, listed in FIN 35, show no significant influence despite the larger share.
How is the equity-method stake measured in the AC302 Unit 7 sample?
Cost of $960,000, plus 12 percent of the investee's $900,000 income, less 12 percent of its $300,000 of dividends. The carrying amount is $1,032,000.