- •Reporting Category:
- •102. Jeremiah Corporation purchased securities during 2006 and classified them as securities available for sale:
- •Problems
- •Required:
- •Required:
- •Required:
- •Required:
- •117. Fkg Inc. Carries the following investments on its books at December 31, 2006, and December 31, 2007. All securities were purchased during 2006.
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •123. Jackson Company engaged in the following investment transactions during the current year.
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Note b - short-term investments
- •133. Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •143. From time to time, debt and equity securities must be reclassified when conditions and circumstances surrounding the investment change.
- •Required:
- •144. Discuss the following questions.
- •Required:
- •Required:
- •Required:
- •147. In its 2001 annual report to shareholders, Maytag Corporation included the following disclosures in its income statement and related footnotes:
- •Special Charges and Loss on Securities
Required:
Prepare any necessary journal entries for MBH at December 31, 2006, under the equity method of accounting for investments.
Answer:
-
Investment in MBH ($150,000 x 30%)
45,000
Investment revenue
45,000
Cash ($75,000 x 30%)
22,500
Investment in MBH
22,500
Learning Objective: 5 Level of Learning: 3
119. On January 1, 2006, American Corporation purchased 25% of the outstanding voting shares of Short Supplies common stock for $210,000 cash. On that date, Short's book value and fair value were both $420,000. The equity method is deemed appropriate for this investment. Short's net income reported on December 31, 2006, was $80,000. During 2006, Short also paid cash dividends in the amount of $24,000.
Required:
Compute the amount that would be reported for the investment on American Corporation's financial statements at December 31, 2006.
Answer:
-
Investment in Short:
Original Investment
$210,000
Share of net income - 25% of $80,000
20,000
Less cash div. – 25% of $24,000
(6,000
)
Balance, December 31, 2006
$224,000
Learning Objective: 5 Level of Learning: 3
120. On January 1, 2006, American Corporation purchased 25% of the outstanding voting shares of Short Supplies common stock for $210,000 cash. On that date, Short's book value and fair value were both $420,000. The equity method is deemed appropriate for this investment. Short's net income reported on December 31, 2006, was $80,000. During 2006, Short also paid cash dividends in the amount of $24,000.
Required:
Prepare the journal entries necessary to record the above information on American Corporation's books during 2006.
Answer:
-
Jan. 1
Investment in Short
210,000
Cash
210,000
Dec. 31
Investment in Short ($80,000 x 25%)
20,000
Investment in revenue
20,000
Dec. 31
Cash ($24,000 x 25%)
6,000
Investment in Short
6,000
Learning Objective: 5 Level of Learning: 3
121. On July 1, 2006, Clearwater Inc. purchased 6,000 shares of the outstanding common stock of Mountain Corporation at a cost of $140,000. Mountain had 30,000 shares of outstanding common stock. Assume the book value and fair value of net assets is $650,000. Both companies have a January through December fiscal year. The following data pertain to Mountain Corporation during 2006:
-
Net Income, January 1 -June 30
$14,000
Net Income, July 1 - December 31
$18,000
Dividends declared and paid, Jan. 1 –June 30
$12,000
Dividends declared and paid, Jul. 1 Dec. 31
$12,000