Question

Co. A had the following transactions relating to its investments during 2013.

- On July 1, 2013, Co. A acquired 4,000 shares of Zebra at a price of $25 per share. On December 31, 2013, dividends of $1.5 per share were declared and paid. On December 31, 2013, the fair value of the Zebra shares had decreased to $24 per share. The shares are classified as held for trading by Co. A.

- On July 1, 2013, Co. A acquired 30,000 shares (30%) of the outstanding shares of Giraffe at a price of $11 per share, giving it significant influence over Giraffe. Giraffe had net income of $400,000 for the six months ended December 31, 2013, and declared and paid dividends of $220,000 to its shareholders on December 31, 2013. On December 31, 2013, Giraffe’s shares had a fair value of $13 per share.

Round to nearest dollar.

Requirement：

1. Determine how much Co. A should recognize Zebra investments in the balance sheet as of December 31, 2013.

2. Determine how much Co. A should report Zebra investment earnings in the income statement as of December 31, 2013.

3. Determine how much Co. A should recognize Giraffe investments in the balance sheet as of December 31, 2013.

4. Determine how much Co. A should report Giraffe investment earnings in the income statement as of December 31, 2013.

Answer 1

1.)	Zebra Investment in Balance sheet	$ 96,000	(4,000 x 24 )
	( At fair value )
2.)	Zebra investment earnings in the income statement
	Dividend revenue ( 4,000 x 1.5 )	$ 6,000
	Unrealized holding gain or (loss) ( ( 24 - 25 ) x 4,000 )	- $ 4,000
3.)	Giraffe investments in the balance sheet	Equity Method
		Amount $
	Purchase Cost (30,000 x 11 )	330,000
	Add: Share of Net Income ( 400,000 x 30% )	120,000
	Less: Dividend received ( 220,000 x 30% )	66,000
	Giraffe investments in the balance sheet	384,000
4.)	Giraffe investment earnings in the income statement
	Investment Earnings ( 400,000 x 30% )	$120,000