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In: Accounting

A) Equity Method for Stock Investment On January 4, Year 1, Ferguson Company purchased 50,000 shares...

A) Equity Method for Stock Investment On January 4, Year 1, Ferguson Company purchased 50,000 shares of Silva Company directly from one of the founders for a price of $46 per share. Silva has 200,000 shares outstanding, including the Daniels shares. On July 2, Year 1, Silva paid $135,000 in total dividends to its shareholders. On December 31, Year 1, Silva reported a net income of $459,000 for the year. Ferguson uses the equity method in accounting for its investment in Silva. a. Provide the Ferguson Company journal entries for the transactions involving its investment in Silva Company during Year 1

ear 1 Jan. 4
Year 1 July 2
Year 1 Dec. 31

b. Determine the December 31, Year 1, balance of Investment in Silva Company Stock.
$

Balance Sheet Presentation of Available-for-Sale Investments

During Year 1, its first year of operations, Galileo Company purchased two available-for-sale investments as follows:

Security Shares Purchased Cost
Hawking Inc. 620 $22,754
Pavlov Co. 1,680 32,088

B) Assume that as of December 31, Year 1, the Hawking Inc., stock had a market value of $44 per share and the Pavlov Co. stock had a market value of $34 per share. Galileo Company had net income of $176,000, and paid no dividends for the year ending December 31, Year 1. All of the available-for-sale investments are classified as current assets.

a. Prepare the Current Assets section of the balance sheet presentation for the available-for-sale investments.

Galileo Company
Balance Sheet (selected tems)
December 31, Year 1
Assets
Current Assets:
$
$

b. Prepare the Stockholders' Equity section of the balance sheet to reflect the earnings and unrealized gain (loss) for the available-for-sale investments.

Galileo Company
Balance Sheet (selected Stockholders' Equity items)
December 31, Year 1
Stockholders' Equity
$

Solutions

Expert Solution

A)
a) JOURNAL ENTRIES:
Year 1 Jan. 4 Investment in Silva Company $ 23,000,000
Cash $ 23,000,000
Year 1 July 2 Cash (135000*50000/200000) $            33,750
Investment in Silva Company $       33,750
Year 1 Dec. 31 Investment in Silva Company (459000*50000/200000) $       114,750
Income in investment in Silva Company $        114,750
b) Balance of investment in Silva Company = 23000000-33750+114750 = $    23,081,000
B) GALILEO COMPANY:
a) Assets
Current Assets:
Equity investments-AFS $        84,400
(620*44+1680*34)
b) Galileo Company
Balance Sheet (selected Stockholders' Equity items)
December 31, Year 1
Stockholders' Equity
Accumulated other comprehensive income: Unrealized gain (loss) on AFS $        29,558

ekkarill92 answered 2 years ago
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