Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 10: Q14E_2 (page 570)

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

Classify and prepare partial financial statements for Money Man’s 25% Technomite investment for the year ended December 31, 2018.

Short Answer

Expert verified

The investment will be reported as a long-term investmentin the company’s balance sheet.

Step by step solution

01

Definition of Financial Statements

All statements concerned with reporting a summary of all the financial transactions are known as financial statements. It reports an overview of all the transactions occurring during the year.

02

Partial Financial Statement

Balance sheet:

Particular

Amount

Assets

Long-Term Investment

Investment in Technomite stock

$65,292

Equity

Other comprehensive Gains/Losses

($2,000)

Income Statement:

Particular

Amount $

Revenue from investment

$45,000

Working Note:

Particular

Amount

Initial investment

$22,400

Less: Dividend payment

(108)

Less: Unrealized holding losses

(2,000)

Add: Increase in investment due to net income

45,000

Fair value of Investment

$65,292

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

As a result of the recent mortgage crisis, many banks reported record losses to their mortgage receivables and other assets based on the decline in these assets’ fair values.

Requirements

1. What would the effect be to stakeholders if such losses were not reported in a timely way?
  1. Question: P10-23B Accounting for equity investments

The beginning balance sheet of Text Source Co. included a \(700,000 investment in Taylor stock (20% ownership).

During the year, Text Source completed the following investment transactions:

Mar. 3 Purchased 5,000 shares at \)13 per share of Josh Software common stock as a long-term equity investment, representing 3% ownership, no significant influence.

May 15 Received a cash dividend of \(0.69 per share on the Josh investment.

Dec. 15 Received a cash dividend of \)100,000 from Taylor investment.

31 Received Taylor’s annual report showing \(100,000 of net income.

31 Received Josh’s annual report showing \)620,000 of net income for the year.

31 Taylor’s stock fair value at year-end was \(620,000.

31 Josh’s common stock fair value at year-end was \)14 per share.

Requirements

Post transactions to T-accounts to determine the December 31, 2018, balances related to the investment and investment income accounts.

Question: S10-5 Accounting for debt investments

On February 1, 2018, Bell Co. decides to invest excess cash of \(16,800 by purchasing a Grant, Inc. bond at face value. At year-end, December 31, 2018, the fair value of the Grant bond was \)19,600. The investment is categorized as a trading debt investment.

Requirements

2. In what category and at what value would Bell report the asset on the December 31, 2018, balance sheet? In what account would the market price change in Grant’s bond be reported, if at all?

What does the rate of return on total assets measure, and how is it calculated?

Accounting for debt investments

League Up & Co. owns vast amounts of corporate bonds. Suppose League Up buys $900,000 of CocoCorp bonds at face value on January 2, 2018. The CocoCorp bonds pay interest at the annual rate of 8% on June 30 and December 31 and mature on December 31, 2022. League Up intends to hold the investment until maturity.

Requirements

2. Journalize the following on League Up’s books:

a. Receipt of final interest payment on December 31, 2022.

b. Disposition of the investment at maturity on December 31, 2022
See all solutions

Recommended explanations on Business Studies Textbooks

Operational Management

Read Explanation

Nature of Business

Read Explanation

Intermediate Accounting

Read Explanation

Introduction to Business

Read Explanation

Managers

Read Explanation

Business Development

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free