Guo cosmetics acquired 10 of the 200000 shares of

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Financial Management: Theory & Practice
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Chapter 14 / Exercise ST-1
Financial Management: Theory & Practice
Brigham/Ehrhardt
Expert Verified
1.Guo Cosmetics acquired 10% of the 200,000 shares of common stock of Chy Fashion ata total cost of $12 per share on March 18, 2017. On June 30, Chy declared and paid a$50,000 dividend. On December 31, Chy reported net income of $110,000 for the year. AtDecember 31, the market price of Chy Fashion was $15 per share. The stock is classifiedas available-for-sale.2.Liptin, Inc., obtained significant influence over Blurr Corporation by buying 25% of Blurr 50,000 outstanding shares of common stock at a total cost of $7 per share on January 1, 2017. On June 15, Blurr declared and paid a cash dividend of $40,000. On December 31, Blurr reported a net income of $90,000 for the year.InstructionsPrepare all the necessary journal entries for 2014 for (a) Guo Cosmetics and (b) Liptin, Inc.Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: ProblemSolving, IMA: FSASolution 164 (10–14 min.)1. 2017Mar. 18Stock Investments...................................240,000Cash (200,000 10% $12)............240,000June 30 Cash........................................................5,000Dividend Revenue ($50,000 10%). . 5,000Dec. 31 Fair Value Adjustment—Available-for-Sale 60,000Unrealized Gain or Loss—Equity($300,000 – $240,000).........................60,0002.Jan. 1 Stock Investments....................................87,500Cash (50,000 25% $7)..................87,500June 15 Cash........................................................10,000Stock Investments ($40,000 25%). . 10,000Dec. 31 Stock Investments......................................22,500Revenue from Stock Investments ($90,000 25%).............................22,500Ex. 165At December 31, 2017, the available-for-sale securities for Allison, Inc. are as follows.SecurityCost Fair ValueX$27,500$24,000Y12,50013,000Z23,00018,000$63,000$55,000FOR INSTRUCTOR USE ONLY16 - 44
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Financial Management: Theory & Practice
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Chapter 14 / Exercise ST-1
Financial Management: Theory & Practice
Brigham/Ehrhardt
Expert Verified
InvestmentsEx. 165(Cont.)Instructions(a)Prepare the adjusting entry at December 31, 2017, to report the securities at fair value.(b)Show the balance sheet and income statement presentation at December 31, 2017, after adjustment to fair value. The securities are considered to be a long-term investment.Ans: N/A, LO: 3, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: ProblemSolving, IMA: FSASolution 165 (5-8 min)(a)Dec. 31Unrealized Gain or Loss—Equity.......................8,000Fair Value Adjustment—Available-for-Sale..............................................8,000(b)Balance SheetInvestmentsInvestments in stock of less than 20% owned companies, at fair value.....................................................$55,000Stockholders’ equityLess: Unrealized loss on available-for-sale securities...........................................................................$ (8,000)Ex. 166At December 31, 2017, the trading securities for Wolfe Company are as follows:SecurityCost Fair ValueX$25,000$27,000Y45,00038,000$70,000$65,000InstructionsPrepare the adjusting entry at December 31, 2017, to report the securities at fair value.Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: ProblemSolving, IMA: FSASolution 166(3 min.)Unrealized Loss—Income.....................................................................5,000Fair Value Adjustment—Trading ($70,000 – $65,000)..................5,000Ex. 167Plotner Corporation has the following trading portfolio of stock investments as of December 31,2017.SecurityCostFair ValueA$19,000$15,000B22,00027,000C34,00029,000$75,000$71,000On January 22, 2018, Plotner Corporation sold security C for $32,000.FOR INSTRUCTOR USE ONLY

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