Part I – 18 points
On March 15, 2000, Coca Cola (KO) purchased 10,000 shares of class A common stock in Coca-
Cola Bottlers (CCE). Assume that this is the first share purchase KO has made in CCE. CCE
has authorized 10,000,000 class A shares of common stock, and it has issued 2,000,000 of these
shares. Class A shares of CCE have a par value of $0.25 per share. KO paid $15 per share to
acquire the 10,000 shares.
At the end of fiscal 2000 (Dec 31, 2000) the share price of CCE had risen to $17.50. In April,
2001, KO sold 2,000 of its shares in CCE at the prevailing market rate of $20/share. At the end
of 2001, CCE declared and paid a cash dividend of $0.30/share. At the end of fiscal 2001 the
price of CCE had fallen to $14.
From the above information (and assuming that KO does
hold these securities for trading
purposes) answer the following questions:
What was the journal entry for the share purchase on March 15, 2000?
Investment in Marketable Securities: Available for Sale
10,000 shares at $15/share acquired.
Would this journal entry have been different if KO had bought 800,000 shares of CCE?
Explain your answer in no more than 2 sentences.
Yes. This would be more than 20% ownership but less than 50% so would be an
active investment that would be accounted for using the equity method.
What journal entries would be made on December 31, 2000?
Allowance for mark to market
Comprehensive income unrealised gain/loss
$2.50 per share unrealized gain. This is available for sale so unrealized
gains go to comprehensive income NOT income. 10,000 shares at $2.50/share.
Name on the DR account is not critical as long as it is clear it is an asset