Concept explainers
Available-for-sale investments:
Available-for-sale investments are the investments in debt or equity securities, where the investor wishes to holds less than 20% of voting stock, and neither referred as trading or hold-to-maturity investments. For debt securities, the investor do not wish to hold it till maturity, and hence reported either as current assets or as long-term assets in the balance sheet depending upon the holding period of the security.
Unrealized-gain or Unrealized-loss:
Unrealized-holding gain or loss occurs when the investor company record the investments at its fair value, in its financial statements, without disposing (selling) them. When the cost of the investment is lesser than the fair value of the investment, then it is unrealized-gain. On the contrary, when the cost of the investment is greater than the fair value of the investment, then it is unrealized-loss.
The value of per share difference of $1 would be reported on the year-end financial statements.
Want to see the full answer?
Check out a sample textbook solutionChapter 10 Solutions
Horngren's Financial & Managerial Accounting
- Armadillo Enterprises acquired the following equity investmentsat the beginning of year 1 as trading investments. Description Number of shares Market price per share Total price Finestra Company 15,000 x $25 $387,500 BVD Company 20,000 X$18 $360,000 Market values at theend of Years 1 &2 are presented below: Market/Fair Value End of year 1 End of year 2 Finestra Company $19 $23 BVD Company |$22 $28 REQUIREMENTS: Prepare the journal entry to record the acquisition of theinvestments. Prepare the adjusting journal entry required at the end of year1. Armadillo Enterprises sells 15,000 shares of BVD Company for $16at the beginning of year 2. Prepare the journal entry to record thesale. Prepare the adjusting journal entry required at the end of year2. Assume that ArmadilloEnterprises now holds these investments asavailable-for-sale. Prepare the journal entry to record the acquisition of theinvestments. Prepare the adjusting journal entry required at the end of year1. Armadillo Enterprises…arrow_forwardOman Oil Company purchased 1,000 shares of Petroleum Company at OMR 0.100 per share as Available for Sale investment. At the end of the year, Petroleum shares fair value is at OMR 0.200 per share. How will Oman Oil record the gain or loss? a. Cr Other Comprehensive Income OMR 100 b. Dr Other Comprehensive Income OMR 100 c. Dr Loss OMR 100 d. Cr Gain OMR 100arrow_forwardBendi Corp. purchased 1,000 shares of Kala Corp. for $16 per share. The investment represents 5% ownership, and Bendi does not have significant influence. The fair value at year-end is $15 per share. Assuming no other transactions occurred, where would the $1 per share difference be reported on the year-end financial statements? Other Income and (Expense) Other Comprehensive Income Operating Income None of the abovearrow_forward
- Company A buys 15% of common stocks of Company B. Company A provides financial support to Company B, which is unavailable to finance its activities. Company A should record its investment in Company B as: a. Available for sale investment b. Trading investment c. As Investment using the equity method d. As Investment preparing consolidated financial statementsarrow_forwardGant Company purchased 30 percent of the outstanding shares of Temp Company for $76,000 on January 1, 20X6. The following results are reported for Temp Company: Net income Dividends paid Fair value of shares held by Gant: January 1 December 31 a. Carries the investment at fair value. b. Uses the equity method. Required A Required B 20X6 $ 47,000 14,000 76,000 95,000 Income from investment Balance in investment Required: Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in Gant's investment in Temp at the end of each year assuming that Gant uses the following options in accounting for its investment in Temp: Complete this question by entering your answers in the tabs below. 20X6 20X7 $ 42,000 30,000 95,000 92,000 20X7 Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in Gant's investment in Temp at the end of each year assuming that Gant uses the equity method in accounting…arrow_forwardHow much is the unrealized gain (loss) recognized in other comprehensive income on December 31, 20x1? Karen Co. purchased the following equity securities on January 1, 20x1 for a total amount of P360,000. Cost Alaska Co. preference shares P200,000 160,000 Valdez Co. ordinary shares Totals P360,000 The shares did not qualify for recognition as held for trading, thus they were classified as investment in equity securities measured at fair value through other comprehensive income. On December 31, 20x1, the portfolio of Karen Co. comprised the following. Fair value - 12/31/x1 Alaska Co. preference shares P240,000 60,000 Valdez Co. ordinary shares Total P300,000 On December 31, 20x2, the portfolio of Karen Co. comprised the following: Fair value-12/31/x2 Alaska Co. preference shares P220,000 Valdez Co. ordinary shares 180,000 Total P400,000 On February 2, 20x3, all of the Alaska Co. preference shares were sold for P160,000 net of transaction costs. 60,000 100,000 O (60,000)arrow_forward
- Garrett Manufacturing owns 10% of the common stock of Timberline Corporation and used the fair-value method to account for this investment. Timberline reported a net income of $110,000 for 20X2 and paid dividends of $50,000 on October 1, 20X2.How much income should Garrett recognize on this investment in 20X2? Group of answer choices $50,000 $16,500 $25,500 $7,500 $5,000arrow_forwardGant Company purchased 30 percent of the outstanding shares of Temp Company for $76,000 on January 1, 20X6. The following results are reported for Temp Company: Net income Dividends paid Fair value of shares held by Gant: January 1 December 31 a. Carries the investment at fair value. b. Uses the equity method. Required A Required B 20X6 $ 47,000 14,000 Required: Gant Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in Gant's investment in Temp at the end of each year assuming that Gant uses the following options in accounting for its investment in Temp: Complete this question by entering your answers in the tabs below. Income from investment Balance in investment 76,000 95,000 20X6 20X7 $ 42,000 30,000 95,000 92,000 20X7arrow_forwardCompany A acquired 37% investment in Company B for R196 000. During the first year after acquieition Company B made net income of R400 000. Using the equity accounting method, what will happen to Company A's investment in Company B? Select one: O a. It remains the same O b. It increases by R148 000 O c Ilt decreases by R196 000 O d. It decreases by R148 000arrow_forward
- Bean Corporation purchased 17% of the outstanding shares of common stock of Williams Corporation as a long-term investment. Subsequently, Williams Corporation reported net income and declared and paid cash dividends. What journal entry would Bean Corporation use to record the purchase of Williams Corporation common stock? debit Investment--Williams Corporation; credit Income of Williams Corporation debit Cash; credit Investment--Williams Corporation debit Cash: credit Dividend Revenue Odebit Investment--Williams Corporation; credit Casharrow_forwardGant Company purchased 30 percent of the outstanding shares of Temp Company for $87,000 on January 1, 20X6. The following results are reported for Temp Company: Net income Dividends paid Fair value of shares held by Gant: January 1 December 31 a. Carries the investment at fair value. b. Uses the equity method. 20X6 $ 43,000 14,000 Income from investment Balance in investment S $ 87,000 106,000 Required: Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in Gant's investment in Temp at the end of each year assuming that Gant uses the following options in accounting for its investment in Temp: Complete this question by entering your answers in the tabs below. 20X7 $ 38,000 28,000 20X6 106,000 103,000 20X7 (800) $ 39,400 95,700 $ 109,000 Answer is complete but not entirely correct. Required A Required B Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in Gant's investment in…arrow_forwardIf CARDO Co purchases the net assets of SYANO Co by issuing 5,000 shares of their P20 par valueshares with a fair value of P40 per share, incurs a mortgage loan for P90,000, pays P150,000 cash andpaying direct, indirect and stock issue costs of P75,000, P50,000 and P40,000 respective. REQUIREMENTS:A. GoodwillB. Consolidated Total Assets at the date of acquisitionarrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education