ADVANCED FINANCIAL ACCOUNTING IA
12th Edition
ISBN: 9781260545081
Author: Christensen
Publisher: MCG
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Chapter 2, Problem 2.26AP
Equity-Method income Statement
Wealthy Manufacturing Company purchased 40 percent of the voting shares of Diversified Products Corporation on March 23, 20X4. On December 31, 20X8,Wealthy Manufacturing’s controller attempted to prepare income statements and retained earnings statements for the two companiesusing the following summarized 20X8 data:
Wealthy manufacturing uses the equity method in accounting for its investment in Diversified
Products. The controller was also aware of the following specific transactions for Diversified Products in 20X8, which were not included in the preceding data:
1. Diversified sold its entire Health Technologies division on September 30, 20X8, for $375.000.The book value of Health Technologies division’s net assets on that date was $331,000. Thedivision incurred an operating loss of $15,000 in the first nine months of 20X8.
2. During 20X8,Diversified sold one of its delivery trucks after it was involved in an accidentand recorded a gain of $10,000.
Required
a. Prepare an income statement and retained earnings statement for Diversified Products for 20X8.
b. Prepare an income statement and retained earnings statement for Wealthy Manufacturing for 20X8.
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Investment question
On January 1, Western Corporation purchased a 25% equity investment in Eastern Corporation for $477,000. On December 31, Eastern paid a $12,400 dividend and reported a net profit of $86,000. The fair value of the shares on December 31 was $407,500. Determine the amount that Western reported as the investment in Eastern Corporation at December 31.
(Do not use $ signs or commas in your answer. Do not round intermediary calculations. Only round final answers to 2 decimal places ex: 5.25)
Gant 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…
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)
Chapter 2 Solutions
ADVANCED FINANCIAL ACCOUNTING IA
Ch. 2 - What types of investments in common stock normally...Ch. 2 - Prob. 2.2QCh. 2 - Describe an investor’s treatment of an investment...Ch. 2 - How is the receipt of a dividend recorded under...Ch. 2 - How does carrying securities at fair value...Ch. 2 - Prob. 2.6QCh. 2 - Prob. 2.7QCh. 2 - Prob. 2.8QCh. 2 - Prob. 2.9QCh. 2 - Prob. 2.10Q
Ch. 2 - How are a subsidiary’s dividend declarations...Ch. 2 - Prob. 2.12QCh. 2 - Give a definition of consolidated retained...Ch. 2 - Prob. 2.14QCh. 2 - Prob. 2.15QCh. 2 - Prob. 2.16AQCh. 2 - When is equity method reporting considered...Ch. 2 - How does the fully adjusted equity method differ...Ch. 2 - What is the modified equity method? When might a...Ch. 2 - Choice of Accounting Method Slanted Building...Ch. 2 - Prob. 2.2CCh. 2 - Prob. 2.3CCh. 2 - Prob. 2.4CCh. 2 - Prob. 2.5CCh. 2 - Prob. 2.6CCh. 2 - Prob. 2.1.1ECh. 2 - Multiple-Choice Questions on Accounting for Equity...Ch. 2 - Prob. 2.1.3ECh. 2 - Prob. 2.1.4ECh. 2 - Multiple-Choice Questions on Intercorporate...Ch. 2 - Prob. 2.2.2ECh. 2 - Prob. 2.3.1ECh. 2 - Prob. 2.3.2ECh. 2 - Prob. 2.3.3ECh. 2 - Prob. 2.4ECh. 2 - Acquisition Price Phillips Company bought 40...Ch. 2 - Prob. 2.6ECh. 2 - Prob. 2.7ECh. 2 - Carrying an investment at Fair Value versus Equity...Ch. 2 - Carrying an Investment at Fair Value versus Equity...Ch. 2 - Prob. 2.10ECh. 2 - Prob. 2.11ECh. 2 - Prob. 2.12ECh. 2 - Prob. 2.13ECh. 2 - Income Reporting Grandview Company purchased 40...Ch. 2 - Investee with Preferred Stock Outstanding Reden...Ch. 2 - Prob. 2.16AECh. 2 - Prob. 2.17AECh. 2 - Changes ¡n the Number of Shares Held Idle...Ch. 2 - Investments Carried at Fair Value and Equity...Ch. 2 - Carried at Fair Value Journal Entries Marlow...Ch. 2 - Consolidated Worksheet at End of the First Year of...Ch. 2 - Consolidated Worksheet at End of the Second Year...Ch. 2 - Prob. 2.23PCh. 2 - Prob. 2.24PCh. 2 - Prob. 2.25APCh. 2 - Equity-Method income Statement Wealthy...Ch. 2 - Prob. 2.27BPCh. 2 - Prob. 2.28BP
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