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U3 Continued Excersises

U3 Continued Excersises - On January 2 2011 Sanborn Tobacco...

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On January 2, 2011, Sanborn Tobacco, Inc., bought 5% of Jackson Industry's capital stock for 90 million as a temporary investment. Sanborn realized that these securities normally would be classified as available- for-sale, but elected the fair value option to account for the investment. Jackson Industry's net income for the year ended December 31, 2011, was $120 million. The fair value of the shares held by Sanborn was $98 million at December 31, 2011. During 2011, Jackson declared a dividend of $60 million. Required: Would this investment be clasified on Sanborn's balance sheet as a held-to- maturity securities, trading securities, available- for-sale securities, significant-incluence investments, or other? Explain Prepare all appropriate journal entries related to the investment during 2011. Indicate the erffect of
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this investment on 2011 income before taxes. Solution: 1) This this investment would be classified as a trading security on Sanborn’s balance sheet because electin 2) Purchase ($ in millions) Investment in 
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