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FA08Quiz10Key

# FA08Quiz10Key - Financial Accounting Fall 2008 Quiz 10 Name...

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Financial Accounting Quiz 10 Name: Fall 2008 On January 1, 2008, Company S issued 100 shares of stock at a price of \$1 per share or \$100 in total to obtain its initial financing. Company P buys x of those shares in S, also on January 1, 2008. (x will be given in each of the questions.) During 2008, Company S reports Revenues of \$200, Expenses of \$150, and Net Income of \$50. On December 15, 2008, Company S declares and pays its shareholders a \$0.10 per share cash dividend. As of December 31, 2008, the market value of S’s stock is \$2.00 per share or \$200 in total, and P continues to hold x shares of S’s common stock. On December 31, 2008, S reports \$1,000 in assets, \$860 in liabilities, and \$140 in common stock on its balance sheet. 1. Suppose x = 10 (i.e., P buys a 10% interest in S on January 1, 2008). a. (1/2 point) At what amount will P report its Investment in S as an asset on P’s December 31, 2008 balance sheet? b. (1/2 point) Suppose P designates its investment in S as a trading security, how much will P’s 2008 Net Income be increased by because of its investment in S?
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