Question

In: Accounting

2. On January 1, 20X8, Ball Corporation purchased shares of Leftwich Company common Stock. a. Assume...

2. On January 1, 20X8, Ball Corporation purchased shares of Leftwich Company common Stock.

a. Assume 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.

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

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

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

iv. Year-end market price of Leftwich common stock is $19.00 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.

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

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

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

iv. Year-end market price of Leftwich common stock is $10.00 per share.

Solutions

Expert Solution

Solution a:

Journal Entries - Ball Corporation
Event Particulars Debit Credit
i Investment in Leftwich company Dr $75,000.00
      To Cash $75,000.00
(To record equity investment)
ii No Journal Entry Required
iii Cash Dr (5000*$1.10) $5,500.00
      To Dividend Revenue $5,500.00
(To record dividend received)
iv Fair value adjustment Dr (5000*$4) $20,000.00
      To Unrealized holding gain or loss - OCI $20,000.00
(To record fair value adjustment on equity investment)

Solution b:

Journal Entries - Ball Corporation
Event Particulars Debit Credit
i Investment in Leftwich company Dr $75,000.00
      To Cash $75,000.00
(To record equity investment)
ii Investment in Leftwich company Dr $12,000.00
      To Investment income ($40,000*30%) $12,000.00
(To record share of income in leftwich company)
iii Cash Dr (5000*$1.10) $5,500.00
      To Investment in Leftwich Company $5,500.00
(To record dividend received)
iv No Journal Entry Required

ekkarill92 answered 1 year ago
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