0000 total 520000 480000 4 0000 the equity method is

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0,000 Total $520,000 $480,000 $4 0 0,000 The equity method is not used in accounting for all investments in securities. (1) Give the journal entries necessary to record the fair value evaluations for both trading (T/S) and available-for-sale (AFS) securities at December 31, 2007 and 2008. Dec.31, 2007 T/S: Dr. Sec. fair value adjustment (T/S) 30,000 Cr. Unrealized gain (T/S) 30,000 AFS: Dr. Unrealized loss (AFS) 40,000 Cr. Sec. fair value adjustment (AFS) 40,000 Dec. 31, 2008 T/S: Dr. Unrealized loss (T/S) 26,000 (= Dr. 4,000 (= 76,000 – 80,000) – Dr.30,000) Cr. Sec. fair value adjustment (T/S) 26,000 AFS: Dr. Unrealized loss (AFS) 80,000 Cr. Sec. fair value adjustment (AFS) 80,000
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Part II – 2 On July 1, 2008 , Mountain Systems acquired 8,000 shares of Precision Services' 40,000 outstanding common shares at a cost of $240,000. The following data pertain to Precision Services for 2008: Net income reported in 2008: January 1 - June 30 ................................... $28,000 July 1 - December 31 .................................. 36,000 Total ............................................... $64,000 Cash dividends declared and paid: January 1 - June 30 ................................... $30,000 July 1 - December 31 .................................. 30,000 Total ............................................... $60,000 (a) Prepare the necessary entries (other than acquisition) for 2008 on Mountain Systems' books using the fair value method . Dr. Cash 6,000 (=30,000 * 20% (=8,000 / 40,000)) Cr. Dividend revenue 6,000 (b) Prepare the necessary entries (other than acquisition) for 2008 on Mountain Systems' books using the equity method . Dr. Investment 7,200 (=36,000*0.2) Cr. Investment revenue 7,200 Dr. Cash 6,000 Cr. Investment 6,000
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