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On January 1, 2008 SSS buys 500 shares of Co common stock for $50/share for the...

On January 1, 2008 SSS buys 500 shares of Co common stock for $50/share for the stock portfolio as short-term investment.   SSS’s purchase represents 1% of outstanding Co stock and the company exerts no influence on Co. Journalize the purchase by SSS.

On February 1 Co pays a $1/share dividend. Journalize SSS’s receipt of the dividend.

On Feb 15, Co reports $1mm net income. What JE does the company make, if any, to recognize the income?

On March 1 SSS decides to sell 250 shares of its Co stock for $45/share. Journalize SSS’s sale of Co stock.

Fast forward to December 31, 2008: The price of Co shares is $49/share. What fair market adjustment does SSS make, if any?

How will this stock investment be presented on the balance sheet?

Jan 1, SSS buys 60,000 shares of Inc at $20/share as a long-term investment in the stock portfolio. The purchase represents 25% of all outstanding Inc stock and SSS has representation on Inc’s board of directors. Journalize the purchase.

On June 31, 2008 Inc reports net income of $20,000 for its fiscal year ended June 31. Make the journal entry for SSS.

On October 1, Inc pays a $1/share cash dividend. Journalize SSS’s receipt of this dividend.

On Dec 31, Inc shares are trading $18/share. What fair value adjustment, if any, needs to be made?

How will this stock be represented on the SSS balance sheet?

Solutions

Expert Solution

Date Account Titles Debit Credit
January 1,2008 Stock Investment-Co Common Stock        25,000
Cash ( 500 x 50 )        25,000
February 1,2008 Cash ( 500 x 1 )             500
Dividend Revenue             500
February 15,2008 No adjustment for Share of Income in Co .
March1,2008 Cash ( 250 x 45 )        11,250
Loss on sale of Stock Investments          1,250
Stock Investment-Co Common Stock        12,500
(250 x 50 )
December 31,2008 Unrecognized loss             250
Fair value Adjustment-Stock Investment- Co Common Stock             250
(12,500 - (250 x 49 ) )
Balance Sheet:-
Assets
Stock Investment-Co Common Stock at Cost        12,500
Less: Fair value adjustment-Stock Investment             250       12,250
Date Account Titles Debit Credit
January 1,2008 Equity method Investment-Shares of Inc 1,200,000
Cash ( 60,000 x 20 ) 1,200,000
June 31,2008 Equity method Investment-Shares of Inc          5,000
Earnings from Equity Method Investments          5,000
(20,000 x 25% )
October 1, 2008 Cash ( 60,000 x 1)        60,000
Equity method Investment-Shares of Inc        60,000
December 31,2008 No Fair value adjustment for Equity Method Investment
Balance Sheet:-
Assets
Investment in Associates
Equity method Investment-Shares of Inc 1,145,000
(1,200,000 + 5,000 - 60,000 )

ekkarill92 answered 3 years ago
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