Question
In: Accounting
Investment Reporting Teasdale Inc. manufactures and sells commercial and residential security equipment. The following selected investment...
Investment Reporting
Teasdale Inc. manufactures and sells commercial and residential security equipment.
The following selected investment transactions occurred during 2017:
| Mar.18. | Purchased 800 shares of Richter Inc. at $40 including brokerage commission. Richter is classified as an available-for-sale security. | |||||||||||
| July.12. | Dividends of $12,000 are received on the Wright Co. investment. | |||||||||||
| Oct. 1. | Purchased $24,000 of Toon Co. 4%, 10-year bonds at 100. The bonds are classified as available for sale. The bonds pay interest on October 1 and April 1. | |||||||||||
| Dec.31. | Wright Co. reported a total net income of $80,000 for 2017. Teasdale recorded equity earnings for its share of Wright Co. net income. | |||||||||||
| 31. | Accrued interest for three months on the Toon Co. bonds purchased on October 1. | |||||||||||
| 31. | Adjusted the available-for-sale investment portfolio to fair value, using the following fair value per-share amounts: | |||||||||||
|
||||||||||||
| 31. | Closed the Teasdale Inc. net income of $51,240. Teasdale Inc. paid no dividends during the year. |
Note 1. Investments are classified as available for sale. The investments at cost and fair value on December 31, 2016, are as follows:
| No. of Shares | Cost per Share | Total Cost | Total Fair Value | |||||
| Alvarez Inc. stock | 960 | $38.00 | $36,480 | $39,936 | ||||
| Hirsch Inc. stock | 1,900 | 28.80 | 54,720 | 60,040 | ||||
| $91,200 | $99,976 | |||||||
Note 2. The Investment in Wright Co. stock is an equity method investment representing 30% of the outstanding shares of Wright Co.
Required:
The comparative unclassified balance sheets for December 31, 2017 and 2016 are provided below. Selected balances are missing. Determine the missing values. Enter all amounts as positive numbers. Do not round interim calculations. Round final answers to nearest dollar.
| Teasdale Inc. | ||
| Balance Sheet | ||
| December 31, 2017 and 2016 | ||
| Dec. 31, 2017 | Dec. 31, 2016 | |
| Cash | $160,000 | $156,000 |
| Accounts Receivable (Net) | 115,000 | 108,000 |
| Available-for-Sale Investments (at Cost)-Note 1 | 91,200 | |
| Plus Valuation Allowance for Available-for-Sale Investments | 8,776 | |
| Available-for-Sale Investments (Fair Value) | $ | $ 99,976 |
| Interest Receivable | $ | |
| Investment in Wright Co. stock-Note 2 | $69,200 | |
|
Office Equipment (Net) |
96,000 | 105,000 |
| Total Assets | $ | $538,176 |
| Accounts Payable | $ 91,000 | $ 72,000 |
| Common Stock | 80,000 | 80,000 |
| Excess of Issue Price Over Par | 250,000 | 250,000 |
| Retained Earnings | 127,400 | |
| Unrealized Gain (Loss) on Available-for-Sale Investments | 8,776 | |
| Total Liabilities and Stockholders' Equity | $ | $538,176 |
Solutions
Expert Solution
| Relevant portion of Balance Sheet: | |
| Dec. 31, 2017 | |
| Available-for-sale investments (at Cost) | 147200 |
| Plus Valuation Allowance for Available-for-sale investments | 4680 |
| Available-for-sale investments (Fair value) | 151880 |
| Interest receivable | 240 |
| Investment in Wright Co. stock | 81200 |
| Total Assets | 604320 |
| Retained earnings | 178640 |
| Unrealized gain (loss) on available-for-sale investments | 4680 |
| Total liabilities and stockholders' equity | 604320 |
Kindly fill in the above into the balance sheet provided.
Working:
1.
| Fair Value Adjustment Computation - Available-for-Sale Investments | |||||
| December 31, 2017 AFS Investments | # of shares | Cost | Fair Value | Unrealized Amount | |
| Alvarez Inc. stock | 960 | 36480 | 39840 | ||
| Hirsch Inc. stock | 1900 | 54720 | 49400 | ||
| Richter Inc. stock | 800 | 32000 | 38400 | ||
| Toon Co. bonds | 24000 | 24240 | |||
| Total | 147200 | 151880 | 4680 | Gain | |
| Required December 31, 2017 balance in Valuation Allowance for AFSI | 4680 | Debit | |||
| December 31, 2016 balance in Valuation Allowance for AFSI | 8776 | Debit | |||
| December 31, 2017 required adjustment to Valuation Allowance for AFSI | 4096 | Credit | |||
2.
| Investment in Wright Co. stock | |
| December 31, 2016 balance | 69200 |
| Less: Dividends received | 12000 |
| 57200 | |
| Add: Share in net income (30% x $80000) | 24000 |
| December 31, 2017 balance | 81200 |
3. Interest receivable = $24000 x 4% x 3/12 = $240
4. Retained earnings = $127400 + $51240 = $178640
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