Question

In: Accounting

On Dec 1st 2016 the Saint Orleans Corporation invested 1,000,000 dollars into TampaBuc Incorporated at the...

  1. On Dec 1st 2016 the Saint Orleans Corporation invested 1,000,000 dollars into TampaBuc Incorporated at the time TampaBuc’s stock was trading at $10 per share. Sean Payton the CEO of Saint Orleans at the time of the purchase said we want to be good partners with our colleagues across the Gulf of Mexico and want to inject this equity into TampaBuc to start to build that relationship. TampaBuc had the following financial information as of Dec 31st

2016 TampaBuc Incorporated:

Net Income: $85,000 (Dec 31st)

Dividends: $10,000 (Paid on Dec 15th to shareholders as of record date Dec 5th)

Shares Outstanding: 1,500,000 (Dec 31st)

Stock Price: 9.27 (Dec 31st)

What is Saint Orleans Corporation Ownership Percentage?  

What accounting method would Saint Orleans Corporation use?

Would Saint Orleans Corporation recognize any income from TampaBuc for the year if yes how much?

What entry would be recorded on December 31st if any?


                              
                              
                              
                              
                              

Solutions

Expert Solution

Number of TampaBuc shares acquired by Saint Orleans (1000000/10)           100,000
Divided by: Shares Outstanding       1,500,000
Saint Orleans Corporation Ownership Percentage 6.66667%

Part 2

Ownership Percentage is less than 20%. Thus, significant interest should not exercised over time.
Fair value method for this investment would be Saint Orleans Corporation use. Fair value method

Part 3

Saint Orleans Corporation recognize any income from TampaBuc for the year             666.67
Date General Journal Debit Credit
   Dec 15 Cash             666.67
Dividend Income              666.67
(To record Dividend Received.) (10000*100000/1500000)

Part 4

Date General Journal Debit Credit
Dec 31 Unrealized holding loss - Net income             73,000
Fair value adjustment              73,000
(To record Fair Value Adjustment.) ((10-9.27)*100000)
Dec 31 No Journal entry Required for Net income.

ekkarill92 answered 1 year ago
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