Jones Company owns a 25 percent interest in shares of Sandridge Company common stock. Under what circumstances might Jones decide that the equity method would not be appropriate to account for this investment?
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Jones Company owns a 25 percent interest in shares of Sandridge Company common stock. Under
what circumstances might Jones decide that the equity method would not be appropriate to account
for this investment?
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- Jones Company obtains all of the common stock of Hudson, Inc., by issuing 50,000 shares of its own stock. Under these circumstances, why might the determination of a fair value for the consideration be difficult?Jones Company obtains all of the common stock of Hudson, Inc., by issuing 50,000 shares of its own stock. Under these circumstances, why might the determination of a fair value for the consideration transferred be difficult?Several years ago, Einstein, Inc., bought 40 percent of the outstanding voting stock of Brooks Company. The equity method is appropriately applied. On August 1 of the current year, Einstein sold a portion of these shares.a. How does Einstein compute the book value of this investment on August 1 to determine its gain or loss on the sale?b. How should Einstein account for this investment after August 1?c. If Einstein retains only a 2 percent interest in Brooks so that it holds virtually no influence over Brooks, what figures appear in the investor’s income statement for the current year?d. If Einstein retains only a 2 percent interest in Brooks so that virtually no influence is held, does the investor have to retroactively adjust any previously reported figures?
- Duke Corporation owns a 70 percent equity interest in Salem Company, a subsidiary corporation. During the current year, a portion of this stock is sold to an outside party. Before recording this transaction, Duke adjusts the book value of its investment account. What is the purpose of this adjustment? How would Duke account for the remainder of its investment subsequent to the sale of this partial interest?Williams Industries has outstanding 30 million common shares, 20 million Class A shares, and 20 million Class B shares. Williams has the right but not the obligation to repurchase the Class A shares if a change in ownership of the voting common shares causes J. P. Williams, founder and CEO, to have less than 50% ownership. Williams has the unconditional obligation to repurchase the Class B shares upon the death of J. P. Williams.Required:Which, if any, of the shares should be reported in Williams’s balance sheet as liabilities? Explain.Williams Industries has outstanding 30 million common shares, 20 million Class A shares, and 20 million Class B shares. Williams has the right but not the obligation to repurchase the Class A shares if a change in ownership of the voting common shares causes J. P. Williams, founder and CEO, to have less than 50% ownership. Williams has the unconditional obligation to repurchase the Class B shares upon the death of J. P. Williams. Required: Which, if any, of the shares should be reported in Williams’ balance sheet as liabilities? Explain.
- dams Industries holds 40,000 shares of FedEx common stock, which is not a large enough ownership interestto allow Adams to exercise significant influence over FedEx. On December 31, 2018, and December 31, 2019,the market value of the stock is $95 and $100 per share, respectively. What is the appropriate reporting categoryfor this investment and at what amount will it be reported in the 2019 balance sheet?Duke Corporation owns a 70 percent equity interest in Salem Company, a subsidiary corporation. During the current year, a portion of this stock is sold to an outside party. Before recording this transaction, Duke adjusts the book value of its investment account. What is the purpose of this adjustment?Landry owns 50 of 250 outstanding shares of Kelly Manufacturing corporation. How many of Landry’s shares must be redeemed in order for the redemption to qualify as disproportionate? Assume that Kelly Manufacturing corporation has $100,000 in current earnings & profits, has no accumulated e&p, and there were no dividends or other distributions this year. If Landry’s stock is redeemed for $15,000 on December 31, what is the effect on earnings and profits?
- Indigo Corporation owns shares of Raccoon Company that are classified as part of Indigo's trading portfolio and accounted for using the fair value through net income model. At December 31, 2021, the securities were carried in Indigo's accounting records at their cost of $418,000, which equaled their fair value. On November 1, 2022, when the securities fair value was $442,000, Indigo declared property dividend that will result in Raccoon’s securities being distributed on December 15, 2022 to the shareholders of record on December 1, 2022.Prepare the journal entries for all three dates. Date Account Titles and Explanation Debit Credit Nov. 1, 2022Dec. 1, 2022Dec. 15, 2022 (To record fair value adjustment) (To record declaration of property dividend) Nov. 1, 2022Dec. 1, 2022Dec. 15, 2022 Nov. 1, 2022Dec. 1, 2022Dec. 15, 2022Martine Cloutier owns 23 percent of the 400,000 outstanding shares of Boucher Inc. Boucher Inc. owns 45,000 shares of Montagne Inc. The Montagne Inc. shares were acquired at a cost of $33 per share and have a current fair market value of $42 per share. On June 30, 2020, Boucher Inc. declares a non-eligible dividend involving the distribution of all of the Montagne Inc. shares on a pro rata basis to its existing shareholders. Required: Determine the effect of the payment of this dividend on Boucher Inc.’s 2020 Net Income For Tax Purposes. In addition, determine the effect of the payment of this dividend on Martine Cloutier’s 2020 Net Income For Tax Purposes and 2020 federal Tax Payable.Arcola, Inc., acquires all 40,000 shares of Tuscola Company for $725,000. A year later, when Arcola’s equity adjusted balance in its investment in Tuscola equals $800,000, Tuscola issues an additional 10,000 shares to outside investors for $25 per share. Which of the following best describes the effect of Tuscola’s stock issue on Arcola’s investment account?a. No effect because the shares were all sold to outside parties.b. The investment account is reduced because Arcola now owns a smaller percentage of Tuscola.c. The investment account is increased because Arcola’s share of Tuscola’s value has increased.d. No effect because Arcola maintains control over Tuscola despite the new stock issue.