1 )Crowe Corp.'s investment portfolio is as follows: Menjou Inc. Investment Purchased shares on Dec 21,...

1 )Crowe Corp.'s investment portfolio is as follows:

Menjou Inc. Investment
Purchased shares on Dec 21, 2016: 5,000
Cost on Dec 21, 2016: $65,000
Fair Value on Dec 31, 2016: $66,000
Sold for on Jan 10, 2017: $68,200
Crowe Corp. accounts for its investment in Menjou Inc. using the available-for-sale method.

Franciosa Inc. Investment
Purchased shares on Dec 21, 2016: 4,000
Cost on Dec 21, 2016: $64,800
Fair Value on Dec 31, 2016: $64,000
Sold for on Jan 10, 2017: $65,200
Crowe Corp. accounts for its investment in Franciosa Inc. using the Tading method.

What should Crowe Corp. report on its Dec 31, 2017 income statement as income from investments?

2)

Voight Corp.2011 CPA31.94.Investments [10]
Voight Corp. has owned 27% of the common stock of Donat Inc. for a number of years, and has the ability to exercise significant influence over Donat Inc.. The following information relates to Voight Corp.'s investment in Donat Inc. during 2016

Carrying amount of Voight Corp.'s investment in Donat Inc.Dec 31, 2015: $220000
Net income of Donat Inc. for 2016: $600000
Total dividends paid to Donat Inc.'s stockholders during 2016: $400000

What is the carrying amount of Voight Corp.'s investment in Donat Inc. at Dec 31, 2016?

Expert Solution

Solution to Question 1 part 1-Crowe Corp.'s investment in Menjou Inc. report on its Dec 31, 2017 income statement as income from investments:

As Crowe Corp. uses available-for-sale method to account for its investment,the gains or losses from such investment are not reflected in net income (unlike those from trading investments), but show up in the other comprehensive income (OCI) classification until they are sold. Net income is reported on the income statement. Therefore, unrealized gains and losses on AFS securities are not reflected on the income statement.Hence gains on change in fair value on 31st December 2016 of $5000000((66000-65000)*5000) shall not be entered in Income Statement but shall be classified under Accumulated Other Comprehnsive Income under Retained Earnings as Unrealised gain on available for sale securities.

On 10 Jan 2017 these securities are sold for 68200 leading to a gain on sale of ((68200-65000)*5000) which is 16000000.Earlier the unrealised fair value gain of 61000 recorded in OCI shall be eliminated and the entire gain of $5000000 shall be recorded in net income statement as gain on sale of investments.Hence at 31/12/2017 the net income statement statement will show a gain of $5000000.

Solution to Question 1 part 2-Crowe Corp.'s investment in Franciosa Inc. report on its Dec 31, 2017 income statement as income from investments:

In this case investment is valued using trading method which entails that fair value gain will be recorded in net income statement during the year of gain and the profit on sale shall also be recorded in net income statement.

On 31/12/2016:Fair Value loss in net income statement:4000*(64800-64000)=3200000

On 31/12/2017:Gain on sale of investment in net income statement:(65200-64800)*4000=1600000

Solution to Part 2: carrying amount of Voight Corp.'s investment in Donat Inc. at Dec 31, 2016

Value of Investment:220000

Add:Share of Profit :162000(600000*27%)

Less:Dividend Paid by Donat to Voight's Shareholders:108000(400000*27%)

Value of Investment on 31.12.2016: 274000

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