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Chapter 10: Q11RQ. (page 567)
Where on the financial statements is an unrealized holding gain or loss on available-for-sale debt investments reported?
Unrealized holdings gains or losses from available for sale debt are reported in the other comprehensive income.
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Classifying and accounting for debt and equity investments
Jetway Corporation generated excess cash and invested in securities as follows: 2018
Jul. 2 Purchased 4,200 shares of Pogo, Inc. common stock at \(12.00 per share. Jetway plans to sell the stock within three months when the company will need the cash for normal operations. Jetway does not have significant influence over Pogo.
Aug. 21 Received a cash dividend of \)0.80 per share on the Pogo stock investment.
Sep. 16 Sold the Pogo stock for \(13.40 per share.
Oct. 1 Purchased a Violet bond for \)20,000 at face value. Jetway classifies the investment as trading and short-term.
Dec. 31 Received a \(100 interest payment from Violet.
31 Adjusted the Violet bond to its market value of \)22,000.
Requirements
1. Classify each of the investments made during 2018. (Assume the equity investments represent less than 20% of the ownership of outstanding voting stock.)
Question: P10-20A Accounting for equity investments
The beginning balance sheet of Waterfall Source Co. included a \(400,000 investment in Evan stock (20% ownership, Waterfall has significant influence over Evan). During the year, Waterfall Source completed the following investment transactions:
Mar. 3 Purchased 4,000 shares at \)11 per share of Lili Software common stock as a long-term equity investment, representing 7% ownership, no significant influence.
May 15 Received a cash dividend of \(0.61 per share on the Lili investment.
Dec. 15 Received a cash dividend of \)70,000 from Evan investment.
31 Received Evan’s annual report showing \(300,000 of net income.
31 Received Lili’s annual report showing \)120,000 of net income for the year.
31 Evan’s stock fair value at year-end was \(390,000.
31 Lili’s common stock fair value at year-end was \)12 per share.
Requirements
3. Prepare Waterfall Source’s partial balance sheet at December 31, 2018, from your answers in Requirement 2.
Accounting for equity investments
Money Man Investments completed the following transactions during 2018:
Jan. 14 Purchased 400 shares of Technomite stock, paying \(56 per share. The investment represents 25% ownership in Technomite’s voting stock and Money Man has significant influence over Technomite. Money Man intends to hold the investment for the indefinite future.
Aug. 22 Received a cash dividend of \)0.27 per share on the Technomite stock.
Dec. 31 Technomite’s current market value is \(51 per share.
31 Technomite reported net income of \)180,000 for the year ended 2018.
Requirements
1. Journalize Money Man’s transactions. Explanations are not required.
Question: P10-20A Accounting for equity investments
The beginning balance sheet of Waterfall Source Co. included a \(400,000 investment in Evan stock (20% ownership, Waterfall has significant influence over Evan). During the year, Waterfall Source completed the following investment transactions:
Mar. 3 Purchased 4,000 shares at \)11 per share of Lili Software common stock as a long-term equity investment, representing 7% ownership, no significant influence.
May 15 Received a cash dividend of \(0.61 per share on the Lili investment.
Dec. 15 Received a cash dividend of \)70,000 from Evan investment.
31 Received Evan’s annual report showing \(300,000 of net income.
31 Received Lili’s annual report showing \)120,000 of net income for the year.
31 Evan’s stock fair value at year-end was \(390,000.
31 Lili’s common stock fair value at year-end was \)12 per share.
Requirements
4. Where is the unrealized holding gain or loss associated with the Lili stock reported?
Accounting for equity investments
Suppose that on January 6, 2018, East Coast Motors paid \(280,000,000 for its 35% investment in Boxcar Motors. East Coast has significant influence over Boxcar after the purchase. Assume Boxcar earned a net income of \)90,000,000 and paid cash dividends of $45,000,000 to all outstanding stockholders during 2018. (Assume all outstanding stock is voting stock.)
Requirements
2. Journalize all required 2018 transactions related to East Cost Motors’s Boxcar investment. Include an explanation for each entry.
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