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Chapter 10: Q12E_3 (page 570)

Accounting for equity investments

Strategic Investments completed the following investment transactions during 2018:

Jan. 14 Purchased 800 shares of Phyflexon stock, paying \(50 per share. The investment represents 4% ownership in Phyflexon’s voting stock. Strategic does not have significant influence over Phyflexon. Strategic intends to hold the investment for the indefinite future.

Aug. 22 Received a cash dividend of \)0.24 per share on the Phyflexon stock.

Dec. 31 Adjusted the investment to its current market value of \(45 per share.

31 Phyflexon reported net income of \)330,000 for the year ended 2018.

Requirements

Prepare a partial income statement for Strategic Investments for year ended December 31, 2018.

Short Answer

Expert verified

The partial net income is$3,808.

Step by step solution

01

Definition of Dividend Revenue

The revenue generated through investment in the company’s shares is known as dividend revenue. Such revenue is generated when the investee company distributes aportion of the profit to the investors.

02

Partial income statement

Particular

Amount $

Dividend revenue

192

Less: Unrealized holding loss

($4,000)

Net income

$3,808

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Most popular questions from this chapter

Question: E10-11 Accounting for debt investments

Peyton Investments completed the following investment transactions during 2018:

2018

Jan. 5 Purchased Vedder Company’s \(400,000 bond at face value. Peyton classified the investment as available-for-sale. The Vedder bond pays interest at the annual rate of 4% on June 30 and December 31 and matures on December 31, 2021. Management’s intent is to keep the bonds for several years.

Jun. 30 Received an interest payment from Vedder.

Dec. 31 Received an interest payment from Vedder.

31 Adjusted the investment to its current market value of \)396,000

Requirements

2. Prepare a partial balance sheet for Peyton’s Vedder investment as of December 31, 2018.

Classifying and accounting for equity investments

Boston Today Publishers completed the following investment transactions during 2018 and 2019:

2018

Dec. 6 Purchased 2,500 shares of Loveable stock at a price of \(24.00 per share, intending to sell the investment next month. Boston did not have significant influence over Loveable.

23. Received a cash dividend of \)1.50 per share on the Loveable stock.

31. Adjusted the investment to its market value of \(11.00 per share.

2019

Jan. 27 Sold the Loveable stock for \)18.20 per share.

Requirements

1. Journalize Boston Today’s investment transactions. Explanations are not required.

Where on the financial statements is an unrealized holding gain or loss on available-for-sale debt investments reported?

Accounting for debt investments

On January 1, 2018, the Chaucer’s Restaurant decides to invest in Lake Turner bonds. The bonds mature on December 31, 2023, and pay interest on June 30 and December31 at 4% annually. The market rate of interest was 4% on January 1, 2018, so the $90,000 maturity value bonds sold for face value. Chaucer’s intends to hold the bonds until December 31, 2023.

Requirements

In what category would Chaucer’s report the investment on the December 31, 2018, balance sheet?

Question: S10-6 Accounting for debt investments

On June 1, 2018, Josh’s Restaurant decides to invest excess cash of \(54,400 from the tourist season by purchasing a Jackrabbit, Inc. bond at face value. At year-end, December 31, 2018, Jackrabbit’s bond had a market value of \)51,200. The investment is categorized as an available-for-sale debt investment and will be held for the short-term.

Requirements

What was the net effect of the investment on Josh’s net income for the year ended December 31, 2018?
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