Investment: The act of allocating money to buy a monetary asset, in order to generate wealth in the future is referred to as investment.
Equity investments: The financial instruments which claim ownership in the issuing company and pay a dividend revenue to the investor company, are referred to as equity securities. The investments in equity securities are referred to as equity investments.
Equity method: Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company.
Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
To Journalize: The entries related to the investments during 2018, for Company R assuming the investment is made under fair value option method.
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Chapter 12 Solutions
INTERMEDIATE ACCOUNTING
- 39. D On January 1, 2019, Caraga Company purchased equity securities to be held as financial assets measured at fair value through other comprehensive income. Market – 12/31/19 3,200,000 3,500,000 4,600,000 Market 12/31/2020 Security R Security S Security T Cost 3,000,000 4,000,000 5,000,000 3,700,000 4,700,000 On January 31, 2020, the entity sold Security R for P3,500,000. What amount should be recognized directly in retained earnings of as a result of the sale of investment in 2020? a. 500,000 b. 300,000 c. 200,000 d. 0arrow_forwardAnswer should be presented as: DECREASE 123456 or INCREASE 123456 During 2021, the first year of operations, Dejavu Company purchased the following equity securities: Market Value December 31, 2022 1,900,000 1,100,000 1,600,000 1,200,000 Security One Security Two Security Three Security Faur Cost 2,200,000 700,000 December 31, 2021 1,400,000 1,000,000 1,500,000 2,500,000 1,600,000 2,000,000 Security One and Security Two are held for trading and Security Three and Security Four are measured at Fair value through other comprehensive income by election. During 2022, the entity sold Security Two for P1,000,000 and half of Security Four for P500,000. Revenues and operating (marketing and administrative) expenses for the year 2022 are P7,500,000 and P4,000,000 respectively. How much is the change in Retained Earnings for the year 2022 due to the equity securities (indicate whether increase or decrease)?arrow_forwardRequired Information Exercise 12-17 (Algo) Equity investments; fair value through net income [LO12-5] [The following information applies to the questions displayed below.] The accounting records of Jamaican Importers, Incorporated, at January 1, 2024, included the following: Assets: Investment in IBM common shares Less: Fair value adjustment $ 1,995,000 (210,000) No changes occurred during 2024 in the Investment portfolio. $ 1,785,000 Exercise 12-17 (Algo) Part 1 Required: 1. Prepare appropriate adjusting entry(s) at December 31, 2024, assuming the fair value of the IBM common shares was $1,359,000. Note: If no entry is required for a transaction/event, select "No journal entry required" In the first account field. View transaction list Journal entry worksheet 1 Record the fair value adjustment assuming the fair value of the IBM common shares was $1,359,000. Note: Enter debits before credits. Transaction General Journal Debit Creditarrow_forward
- 37. On November 1, 2021, Romblon Company invested in P600,000 in equity securities representing 20,000 ordinary shares of Coke Company. The investment was designated as equity investments at fair value through profit or loss since the company intends to sell the security for a short- term profit. On December 31, 2021, this investment had a market value of P580,000. On January 15, 2022, Romblon sold the investment for P630,000. What amount of realized gain should Romblon recognized on the disposal of the investments?arrow_forwardJournal entry worksheet 1 Record the fair value adjustment assuming the fair value of the IBM common shares was $1,283,000. Note: Enter debits before credits. Transaction 1 Record entry General Journal Clear entry Debit Credit View general journalarrow_forwardProblem 7: In January 2020, Golden Company invested in P900,000 equity securities representing 15% interest in Rings Company. Golden Company incurred transaction cost of P100,000. On December 31, 2020, this investment has a market value of P950,000. On July 1, 2021, Golden Company sold all the investments for P1,200,000. 7.1 What amount of gain on sale should Golden Company recognize in profit or loss assuming the security was classified as Investment at FVPL? 7.2 How much is the amount transferred to Retained earnings upon sale assuming the security was classified as Investment at FVOCI? 7.3 Prepare all the necessary journal entries.arrow_forward
- 24. On November 1, 2019, TUNA Company invested P600,000 in equity securities representing 20,000 ordinary shares of SARDINES Company. The investment was classified as equity security to profit or loss since the company intends to sell the security for a short-term profit. In December 31, 2019, this investment has a market value of P580,000. On January 15, 2020, TUNA Company sold the investment of P630,000. What amount of realized gain should TUNA Company recognize on the disposal of the trading security?arrow_forwardFounded on January 1, 20X1, Gehl Company had the following passive investments in equity securities at the end of 20X1 and 20X2: Equity Security Cost 12/31/X2 Fair Value A $ 96,000 $ 94,000 B 184,000 162,000 C 126,000 136,000 Required: If the company recorded a $4,000 debit to its Fair value adjustment account as its 20X2 fair value adjustment, what must have been the unrealized gain or loss reported at the end of 20X1?arrow_forwardhas equity securities designated as at fair value Hilton, Inc. through profit or loss that were purchased during 2020. At the end of 2020, the securities had total fair value of P525,000. As of December 31, 2021, the cost and fair values are as follows: Cost P100,000 190,000 250,000 Fair Value P 90,000 210,000 235,000 Investment 1 2 The gain or loss that would be reported in profit or loss as a result of the valuation of the securities at the end of 2021 is P 5,000 P10,000 P20,000 P25,000 а. b. c. d.arrow_forward
- Ch. 29. In 2020, CVR Energy, Inc. began purchasing stocks of Delek US Holdings, Inc. CVR acquired 15% stake in Delek in hopes to replace 3 of Delek’s board members. This is an example of which of the following? Group of answer choices white knight street sweep tender offerarrow_forwardThe investments of Harlon Enterprises included the following cost and fair value amounts ($ in millions): Fair Value, Dec. 31 Equity Investments Cost 2021 2022 A Corporation shares $ 50 $ 29 N/A B Corporation shares 65 65 $ 67 C Corporation shares 30 N/A 29 D Industries shares 60 61 65 Totals $ 205 $ 155 $ 161 Harlon accounts for its equity investment portfolio at fair value through net income. Harlon sold its holdings of A Corporation shares on June 1, 2022, for $30 million. On September 12, it purchased the C Corporation shares. Required:1. What is the effect of the sale of the A Corporation shares and the purchase of the C Corporation shares on Harlon’s 2022 pretax earnings?2. At what amount should Harlon's securities equity investment portfolio be reported in its 2022 balance sheet? (For all requirements, enter your answers in millions, (i.e., 10,000,000 should be entered…arrow_forwardProble.n 16-15 (PHILCPA Adapted) Heste Company invested in shares of another entity. Number of shares Cost 2018 2019 20,000 40,000 2,000,000 3,500,000 In 2020, the entity received 60,000 rights to purchase one share at P80. Five rights are required to purchase the share. At issue date, rights had a market value of P5 each. The entity used rights to purchase 10,000 additional shares of the investee and allowed the rights not exercised to lapse. What amount was debited to investment account for the purchase of the additional new shares? 1,100,000 b. 1,050,000 a.: 800,000 900,000 C, d.arrow_forward
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