Intermediate Accounting - Myaccountinglab - Pearson Etext Access Card Student Value Edition
1st Edition
ISBN: 9780134047430
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 16, Problem 16.5E
a.
To determine
The journal entry to record the acquisition of investments.
b.
To determine
To prepare: The journal entry to record the end of Year 1 fair value adjustment.
c.
To determine
To prepare: The journal entry to record the sale.
d.
To determine
To prepare: The journal entry to record the end of Year 2 fair value adjustment.
e.
To determine
The effect of the investments on earnings in Year 1 and 2.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
How much is the unrealized gain (loss) accumulated in equity as of December 31,
20x2?
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
180,000
Valdez Co. ordinary shares
Total
P400,000
On February 2, 20x3, all of the Alaska Co. preference shares were sold for P160,000 net of transaction
costs.
0
100,000
40,000
O (40,000)
How 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)
Investments in Stocks - This portfolio is composed of GKKB Company shares (GanyanKabaKatigasBash) and ABC Company shares. The shares were not held for trading and management has elected to designate the investments at fair value through other comprehensive income.
Date
Account
Debit
Credit
May 3, 2020
Investment in GKKB Company
25,250
Broker's fee
1,000
Cash
26,250
To record the acquisition of GKKB shares and its related transaction cost
Investment in ABC Company
32,450
Cash
32,450
To record the acquisition of ABC shares, acquired at P32.45 per share
December 31, 2020
Unrealized Gain / (Loss) on market changes
400
Investment in ABC Company
1,500
Investment in GKKB Company
1,900
To record the market value adjustment for 2020
May 28, 2021
Investment in ABC Company
5,000
Dividend income
5,000
Received 100 shares of ABC Company in lieu of cash dividends of P5…
Chapter 16 Solutions
Intermediate Accounting - Myaccountinglab - Pearson Etext Access Card Student Value Edition
Ch. 16 - Prob. 16.1QCh. 16 - Is reporting an investment at its cost considered...Ch. 16 - Prob. 16.3QCh. 16 - Prob. 16.4QCh. 16 - Prob. 16.5QCh. 16 - Prob. 16.6QCh. 16 - What categories can managers use to classify...Ch. 16 - When is the equity method of accounting for...Ch. 16 - Prob. 16.9QCh. 16 - Can companies apply the fair value option to all...
Ch. 16 - What is the fair value hierarchy for investment...Ch. 16 - Prob. 16.12QCh. 16 - Prob. 16.13QCh. 16 - Prob. 16.14QCh. 16 - Prob. 16.15QCh. 16 - Prob. 16.16QCh. 16 - Prob. 16.17QCh. 16 - Deutsch Imports has three securities in its...Ch. 16 - Prob. 16.2MCCh. 16 - Prob. 16.3MCCh. 16 - Prob. 16.4MCCh. 16 - Prob. 16.5MCCh. 16 - Prob. 16.6MCCh. 16 - Prob. 16.7MCCh. 16 - Prob. 16.1BECh. 16 - Prob. 16.2BECh. 16 - Debt Investments, Trading. Using the information...Ch. 16 - Prob. 16.4BECh. 16 - Prob. 16.5BECh. 16 - Prob. 16.6BECh. 16 - Prob. 16.7BECh. 16 - Prob. 16.8BECh. 16 - Notes Receivable. Aaron Anatole accepted a...Ch. 16 - Prob. 16.10BECh. 16 - Prob. 16.11BECh. 16 - Prob. 16.12BECh. 16 - Debt Investments. Impairments. IFRS. For each debt...Ch. 16 - Prob. 16.14BECh. 16 - Prob. 16.15BECh. 16 - Prob. 16.1ECh. 16 - Prob. 16.2ECh. 16 - Prob. 16.3ECh. 16 - Prob. 16.4ECh. 16 - Prob. 16.5ECh. 16 - Prob. 16.6ECh. 16 - Debt and Equity Investments, Available-for-Sale...Ch. 16 - Prob. 16.8ECh. 16 - Prob. 16.9ECh. 16 - Prob. 16.11ECh. 16 - Equity-Investments, Equity Method. Book Value of...Ch. 16 - Prob. 16.13ECh. 16 - Prob. 16.14ECh. 16 - Notes Receivable. Each of the following three...Ch. 16 - Prob. 16.16ECh. 16 - Prob. 16.17ECh. 16 - Prob. 16.18ECh. 16 - Prob. 16.19ECh. 16 - Prob. 16.20ECh. 16 - Prob. 16.21ECh. 16 - Prob. 16.22ECh. 16 - Prob. 16.23ECh. 16 - Prob. 16.1PCh. 16 - Debt Investments, Trading. Freder Software Group...Ch. 16 - Prob. 16.3PCh. 16 - Equity Investments, Readily Determinable Fair...Ch. 16 - Prob. 16.5PCh. 16 - Prob. 16.6PCh. 16 - Prob. 16.7PCh. 16 - Prob. 16.8PCh. 16 - Prob. 16.9PCh. 16 - Equity Investments, Equity Method, Fair Value...Ch. 16 - Prob. 16.11PCh. 16 - Prob. 16.12PCh. 16 - Prob. 16.13PCh. 16 - Prob. 16.14PCh. 16 - Prob. 16.15PCh. 16 - Prob. 16.16PCh. 16 - Prob. 16.17PCh. 16 - Prob. 1JCCh. 16 - Prob. 2JCCh. 16 - Prob. 1FSACCh. 16 - Prob. 1SSCCh. 16 - Prob. 1BCCCh. 16 - Prob. 2BCC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Dunbrook Travel, Inc. acquired an 80% interest in Ocean Cruises on December 31 for $970,000. Dunbrook has the ability to exercise significant influence on management decisions. The Ocean Cruises stock is publically traded. During the year, Ocean Cruises reported net income of $160,000 and paid cash dividends of $40,000. How should DunbrookTravel account for its investment in Ocean Cruises? A. Apply the equity method and report the investment at market value at year end. B. Apply the equity method and perform a full consolidation. C. Apply mark-to-market accounting and consolidate the statements at year end. D. Account for the investment as a special purpose entity.arrow_forwardAll securities purchases made by Mechanical Engineers, Inc. described in this problem represent less than a 20% interest in the investee companies. Part I: Mechanical Engineers, Inc. made the following purchases of equity securities during 20X7, the first year any investments were made: Investee Company Cost per per share during 20X7* Number of shares purchased Total Cost Market value per share on Dec. 31, 20X7 Total Market Value on Dec. 31, 20X7 W Co.** $11.00 500 $5,500 $14.00 $7,000 X Co.*** $18.00 1,000 $18,000 $17.00 $17,000 $23,500 $24,000 * Costs per share include broker’s fees and commissions.** Received $50 dividend during 20X7 from W Co.*** Received $200 dividend during 20X7 from X Co. Mechanical Engineers, Inc. intends to sell the W Co. and X Co. investments in the short term in an open market. Mechanical Engineers, Inc. adjusts its allowance account for securities valuation annually at the…arrow_forwardInvestments in Stocks - This portfolio is composed of GKKB Company shares (GanyanKabaKatigasBash) and ABC Company shares. The shares were not held for trading and management has elected to designate the investments at fair value through other comprehensive income. Date Account Debit Credit May 3, 2020 Investment in GKKB Company 25,250 Broker's fee 1,000 Cash 26,250 To record the acquisition of GKKB shares and its related transaction cost Investment in ABC Company 32,450 Cash 32,450 To record the acquisition of ABC shares, acquired at P32.45 per share December 31, 2020 Unrealized Gain / (Loss) on market changes 400 Investment in ABC Company 1,500 Investment in GKKB Company 1,900 To record the market value adjustment for 2020 May 28, 2021 Investment in ABC Company 5,000 Dividend income 5,000…arrow_forward
- Oakbrook Travel, Inc. acquired an 80% interest in Island Cruises on December 31 for $485,000. Oakbrook has the ability to exercise significant influence on management decisions. The Island Cruises stock is publically traded. During the year, Island Cruises reported net income of $80,000 and paid cash dividends of $20,000.How should Oakbrook Travel account for its investment in Island Cruises? Select one: A. Apply the equity method and report the investment at market value at year end. B. Account for the investment as a special purpose entity. C. Apply the equity method and perform a full consolidation. D. Apply mark-to-market accounting and consolidate the statements at year end.arrow_forward1. The cost method of accounting for stock investments is used when the company acquires a. Greater than 50% of the company's stock b. Between 20% to 50% of the company's stock c. Less than 20% of the company's stock 2. The significance of percentage of ownership relates to how much _____________ the acquiring company has in the new company. a. data b. control c. confidencearrow_forwardAvailable-For-Sale Investments With Known Market Value Porter Inc. is a Canadian public company with a December 31 year end. On January 1, 2007, the company acquires 5,000 shares of Santin Ltd. at a cost of $23 per share. Transaction costs total $1,150 and Porter chooses to include them in the cost of the investment. The investment does not give Porter influence over, or control of, Santin. Porter classifies these shares as available for sale. During the year ending December 31, 2007, Santin Ltd. declares and of $0.90 per share. The Santin shares have a quoted market price that is established in an active market. On December 31, 2007, the fair value of the Santin shares has declined to $19 per share. pays dividends On March 1, 2008, Porter sells all of the Santin shares for $25 per share. Transaction costs for the disposal are $1,250. Provide the journal entries to record the preceding information on the books of Porter Inc. and a summary of the effect of the investment in Santin on…arrow_forward
- Company A purchased a certain number of Company B's outstanding voting shares at $25 per share as a long-term investment. Company B had outstanding 32,000 shares of $12 par value stock. Complete the following table relating to the measurement and reporting by Company A after acquisition of the shares of Company B stock. Required: a. What level of ownership by Company A of Company B is required to apply the method? b. What events should cause Company A to recognize revenue related to the investment in Company B? c. After the acquisition date, how should Company A change the balance of the investment account with respect to the stock owned in Company B (other than for the disposal of the investments)? Additional information: Net income reported by Company B in the first year Dividends declared by Company B in the first year Market price of Company B stock at the end of the first year d. At acquisition, the investment account on the books of Company A should be debited for what amount? e.…arrow_forwardO’Brien Industries Inc. is a book publisher. Note 1. Investments are classified as available for sale. The investments at cost and fair value on December 31, Year 1, are as follows: No. of Shares Cost per Share Total Cost Total Fair Value Bernard Co. stock 2,000 $14 $28,000 $25,500 Chadwick Co. stock 1,000 43 43,000 40,200 $71,000 $65,700 Note 2. The investment in Jolly Roger Co. stock is an equity method investment representing 32% of the outstanding shares of Jolly Roger Co. The following selected investment transactions occurred during Year 2: May 5. Purchased 2,300 shares of Gozar Inc. at $26 per share including brokerage commission. Gozar Inc. is classified as an available-for-sale security. Oct. 1. Purchased $42,000 of Nightline Co. 5%, 10-year bonds at 100. The bonds are classified as available for sale. The bonds pay interest on October 1 and April 1. Oct. 9. Dividends of $11,800 are received on the Jolly…arrow_forwardTrend Company reported the following investment in equity through other comprehensive income in its December 31, 2020 statement of financial position: Brand Company, equity instrument, at fair market value PI,200,000 Unrealised loss reported in OC1 200 000 0n December 31,2021, there was objective evidence that came to the attention of Trend Company that the investment in Brand Company is impaired. Market value of the investment was established at P800,000. What amount of impairment loss should Trend Company recognize on the investment as of December 31, 2019?arrow_forward
- You are given the following information about Target Inc.: Identifiable assets: Carrying amount: $ 540,000 Fair value: $ 485,000 Identifiable Liabilities: Carrying amount: $ 150,000 Fair value: $ 190,000 The total number of shares issued by Target is 20,000, at an average market price of $23 per share. Consider two scenarios: 1) Shell Inc. is set up to acquire Target, and buys for cash 100% of the issued share capital of Target for $ 510,000. 2) Shell buys an 82% stake in Target, thus acquiring a majority interest. The price paid is now $425,000. Assume that the tax rate is 0, so that you can ignore any deferred tax considerations. REQUIRED: A) Calculate the value of goodwill at acquisition date for the two scenarios, using both the full and partial method of goodwill in scenario 2). B) Provide all of the consolidation entries at the date of acquisition (not only those related to the elimination…arrow_forwardThe owners of a private company wish to dispose of their entire investment in the company. The company has an issued share capital of $1m of $0.50 nominal value ordinary shares. The owners have made the following valuations of the company's assets and liabilities: $m Non-current assets (book value) Current assets Non-current liabilities Current liabilities 30 18 12 10 The net realisable value of the non-current assets exceeds their book value by $4m. The current assets include $2m of accounts receivable which are thought to be irrecoverable. What is the minimum price per share that the owners should accept for the company (to the nearest whole $)?arrow_forwardEquity and Available-for-Sale Investments O'Brien Industries Inc. is a book publisher. The availlable-for-sale investments at cost and fair value on December 31, 20Y4, are as follows: Issuing Company Cost Fair Value Bernard Co. $16,000 $14,600 Chadwick Co. 31,500 29,500 $47,500 $44,100 The investment in Jolly Roger Co. stock represents 30% of the outstanding shares of Jolly Roger Co. The following selected transactions occurred during 20Y5: Jan. 2. Purchased $34,200 of Gozar Inc. 5%, 10-year bonds at 100. The bonds are classified as an vailable-for- sale investment. The bonds pay Interest'on June 30 and December 31. June Received interest for 6 months on the Gozar Inc. 30. bonds purchased on January 2. Oct, 1. Purchased $27,000 of Nightline Co. 5%, 10-year bonds at 100, The bonds are classified as an available-for-sale investment. The bonds pay interest on October 1 and April 1. Dividends of $7,900 are received on the Jolly Roger 9. Co, investment. Dec. 31. Jolly Roger Co. reported a…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- 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
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education