Question

Assessing Financial Statement Effects Investments

On January 1, 2018, Ball Corporation purchased shares of Leftwich Company common stock.

a. Assume that the stock acquired by Ball represents 15% of Leftwich’s voting stock and that Ball has

no influence over Leftwich’s business decisions. Use the financial statement effects template (with

amounts and accounts) to record the following transactions.

1. Ball purchased 5,000 common shares of Leftwich at $15 cash per share.

2. Leftwich reported annual net income of $40,000.

3. Ball received a cash dividend of $1.10 per common share from Leftwich.

4. Year-end market price of Leftwich common stock is $19 per share.

b. Assume that the stock acquired by Ball represents 30% of Leftwich’s voting stock and that Ball accounts

for this investment using the equity method because it is able to exert significant influence. Use the

financial statement effects template (with amounts and accounts) to record the following transactions.

1. Ball purchased 5,000 common shares of Leftwich at $15 cash per share.

2. Leftwich reported annual net income of $40,000.

3. Ball received a cash dividend of $1.10 per common share from Leftwich.

4. Year-end market price of Leftwich common stock is $19 per share

Note : Please use the financial statement effects template and also list out the accounts for every transaction and if possible the reason behind a transaction not having a corresponding entry

Answer 1

ANSWER

a. Ball has no influence over Leftwich's business decisions :

Balance Sheet :

Transaction	Cash Assets	Non Cash Assets	Liabilities	Contributed Capital	Earned Capital
	$	$	$	$	$
1.	- 75,000	75,000
2.	0	0	0	0	0
3.	5500				5500
4.		20,000			20,000

Income Statement:

Revenues	Expenses	Net Income
0	0	0
0	0	0
5500	0	5500
0	0	0

b. Balance Sheet:

Transaction	Cash Assets	Non-Cash Assets	Liabilities	Contributed Capital	Earned Capital
	$	$	$	$	$
1.	- 75,000	75,000
2.		12,000			12,000
3.	5500	- 5500
4.	0	0	0	0	0

Income Statement :

Revenues	Expenses	Net Income
0	0	0
12,000	0	12,000
0	0	0
0	0	0