UESTION 3 1. THE FOLLOWING INFORMATION IS USED FOR QUESTIONS 1-5. Quiz Company reported the following transactions related to its investments. Year 1 January 15 February 1 May 1 July 1 A Company B Company July 1 August 6 October 1 Purchased 300,000 shares of A Company common stock for $20 per share. The investment represents a 25% ownership interest and gives Quiz Company the ability to significantly influence the investee. On the date of acquisition, the fair value of A Company's net assets exceeded the book value by $400,000. The amount is attributable to a building with a remaining useful life of 20 years. Purchased 2,000 shares of B Company common stock for $25 per share. The amount represents a less than 1% ownership interest. On the date of acquisition, the fair value of B Company's net assets exceeded the book value by $100,000. The amount is attributable to equipment with a remaining useful life of 10 years. Received dividends of $0.50 per share for the B Company common stock. Purchased $100,000, 5% C Company bonds for $100,000. The bonds pay interest on June 30 and December 31. Quiz Company management has the positive intent and ability to hold the bonds until they mature. Purchased $50,000, 4% D Company bonds for $50,000. The bonds pay interest on July 1 and January 1. Quiz Company management does not plan to actively trade the bonds but also does not plan to hold the bonds until they mature. Received dividends of $0.25 per share for the A Company common stock. Purchased $80,000, 6% E Company bonds for $80,000. The bonds pay interest quarterly with the next interest payment date on December 31. Quiz C management intends to trade the bonds in the short term. Year Sold all of the C Company bonds for $105,000. Sold all of the D Company bonds for $55,000. Sold all of the E Company bonds for $90,000. January 1 January 1 January 1 January 1 May 1 August Sold 1,000 shares of the B Company common stock for $27 per share. Received dividends of $0.50 per share for the remaining shares of B Company common stock. Received dividends of $0.25 per share for the A Company common stock. 16 A Company reported net income of $1,000,000 for the year ended December 31, Year 1 and $1,200,000 for the year ended December 31, Year 2. B Company reported net income of $2,000,000 for the year ended December 31, Year 1 and $2,100,000 for the year ended December 31, Year 2. The following fair values were available for the investments as of December 31, Year 1 and Year 2. Year 2 $19 per share $28 per share $99,000 $58,000 $95,000 Year 1 C Company $21 per share $27 per share $105,000 $55,000 $90,000 D Company E Company Determine the balance of the fair value adjustment account on December 31, Year 1 resulting from the investments.
UESTION 3 1. THE FOLLOWING INFORMATION IS USED FOR QUESTIONS 1-5. Quiz Company reported the following transactions related to its investments. Year 1 January 15 February 1 May 1 July 1 A Company B Company July 1 August 6 October 1 Purchased 300,000 shares of A Company common stock for $20 per share. The investment represents a 25% ownership interest and gives Quiz Company the ability to significantly influence the investee. On the date of acquisition, the fair value of A Company's net assets exceeded the book value by $400,000. The amount is attributable to a building with a remaining useful life of 20 years. Purchased 2,000 shares of B Company common stock for $25 per share. The amount represents a less than 1% ownership interest. On the date of acquisition, the fair value of B Company's net assets exceeded the book value by $100,000. The amount is attributable to equipment with a remaining useful life of 10 years. Received dividends of $0.50 per share for the B Company common stock. Purchased $100,000, 5% C Company bonds for $100,000. The bonds pay interest on June 30 and December 31. Quiz Company management has the positive intent and ability to hold the bonds until they mature. Purchased $50,000, 4% D Company bonds for $50,000. The bonds pay interest on July 1 and January 1. Quiz Company management does not plan to actively trade the bonds but also does not plan to hold the bonds until they mature. Received dividends of $0.25 per share for the A Company common stock. Purchased $80,000, 6% E Company bonds for $80,000. The bonds pay interest quarterly with the next interest payment date on December 31. Quiz C management intends to trade the bonds in the short term. Year Sold all of the C Company bonds for $105,000. Sold all of the D Company bonds for $55,000. Sold all of the E Company bonds for $90,000. January 1 January 1 January 1 January 1 May 1 August Sold 1,000 shares of the B Company common stock for $27 per share. Received dividends of $0.50 per share for the remaining shares of B Company common stock. Received dividends of $0.25 per share for the A Company common stock. 16 A Company reported net income of $1,000,000 for the year ended December 31, Year 1 and $1,200,000 for the year ended December 31, Year 2. B Company reported net income of $2,000,000 for the year ended December 31, Year 1 and $2,100,000 for the year ended December 31, Year 2. The following fair values were available for the investments as of December 31, Year 1 and Year 2. Year 2 $19 per share $28 per share $99,000 $58,000 $95,000 Year 1 C Company $21 per share $27 per share $105,000 $55,000 $90,000 D Company E Company Determine the balance of the fair value adjustment account on December 31, Year 1 resulting from the investments.
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA2: Investments
Section: Chapter Questions
Problem 23E
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Transcribed Image Text:QUESTION 3
1. THE FOLLOWING INFORMATION IS USED FOR QUESTIONS 1-5.
Quiz Company reported the following transactions related to its investments.
Year 1
January 15
February 1
May 1
July 1
July 1
August 6
October 1
Purchased 300,000 shares of A Company common stock for $20 per share. The investment represents a 25% ownership interest and
gives Quiz Company the ability to significantly influence the investee. On the date of acquisition, the fair value of A Company's net
assets exceeded the book value by $400,000. The amount is attributable to a building with a remaining useful life of 20 years.
Purchased 2,000 shares of B Company common stock for $25 per share. The amount represents a less than 1% ownership interest.
On the date of acquisition, the fair value of B Company's net assets exceeded the book value by $100,000. The amount is
attributable to equipment with a remaining useful life of 10 years.
Received dividends of $0.50 per share for the B Company common stock.
Purchased $100,000, 5% C Company bonds for $100,000. The bonds pay interest on June 30 and December 31. Quiz Company
management has the positive intent and ability to hold the bonds until they mature.
Purchased $50,000, 4% D Company bonds for $50,000. The bonds pay interest on July 1 and January 1. Quiz Company management
does not plan to actively trade the bonds but also does not plan to hold the bonds until they mature.
Received dividends of $0.25 per share for the A Company common stock.
Purchased $80,000, 6% E Company bonds for $80,000. The bonds pay interest quarterly with the next interest payment date on
December 31. Quiz Company management intends to trade the bonds in the short term.
Year 2
January 1
January 1
January 1
January 1
May 1
August 6
Received dividends of $0.50 per share for the remaining shares of B Company common stock.
Received dividends of $0.25 per share for the A Company common stock.
A Company reported net income of $1,000,000 for the year ended December 31, Year 1 and $1,200,000 for the year ended December 31, Year 2.
B Company reported net income of $2,000,000 for the year ended December 31, Year 1 and $2,100,000 for the year ended December 31, Year 2.
The following fair values were available for the investments as of December 31, Year 1 and Year 2.
Sold all of the C Company bonds for $105,000.
Sold all of the D Company bonds for $55,000.
Sold all of the E Company bonds for $90,000.
Sold 1,000 shares of the B Company common stock for $27 per share.
Year 1
$21 per share
$27 per share
Year 2
$19 per share
$28 per share
A Company
B Company
C Company
$105,000
$99,000
D Company
$58,000
$55,000
$90,000
$95,000
E Company
Determine the balance of the fair value adjustment account on December 31, Year 1 resulting from the investments.
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