(d) What was Demo Co.'s total dividends for the year? Since we know that Gator Co owns 25% of the shares of Demo Co and Gator Co.'s share of Demo Co must be $52,000/ 25% = $208,000. "parent" company's cash but decreases its investment in the "subsidiary".
Exercise 17-14 (Equity Investment - Trading) Feiner Co. had purchased 300 shares of Guttman Co. for $40 each this year and classified the investment as a trading security. Feiner Co. sold 100 shares of the stock for $43 each. At year end the price per share of the Guttman Co. stock had dropped to $35. Instructions Prepare the journal entries for these transactions and any year-end adjustments. To record purchase of 300 shares of Guttman Co. for $40 1 Trading Securities (300 shares X $40) 12,000 Cash 12,000 To record the sale of 100 shares of Guttman Co. for $43 each. 2 Cash (100 shares X $43) 4,300 Gain on Sale of Stock 300 Trading Securities (100 X $40) 4,000 To record change in fair value of remaining 100 shares of Guttman Co. stock 3 Unrealized Holding Gain or Loss—Income 1,000 Securities Fair Value Adjustment (Trading Securities) ($40–$35) X 200 1,000
Exercise 17-16 (Fair Value and Equity Method Compared) Gregory Inc. acquired 20% of the outstanding common stock of Handerson Inc., on December 31, 2010. The purchase price was $1,250,000 for 50,000 shares. Handerson Inc. declared and paid an $0.80 per share cash dividend on June 30 and on December 31, 2011. Handerson reported net income of $730,000 for 2011. The fair value of Handerson's stock was $27 per share at December 31, 2011. Instructons: (a) Prepare the journal entries for Gregory Inc. for 2010 and 2011, assuming that Gregory cannot exercise significant influence over Handerson. The securities should be classified as available-for-sale. 31-Dec-10 Available-for-Sale Securities 1,250,000 Cash 1,250,000 30-Jun-11 Cash 40,000 Dividend Revenue 40,000 31-Dec-11 Cash 40,000 Dividend Revenue 40,000 Securities Fair Value Adjustment (Available for Sale) 100,000 Unrealized Holding Gain or Loss—Equity 100,000 $27 X 50,000 = $1,350,000 $1,350,000 – $1,250,000 = $100,000 (b) Prepare the journal entries for Gregory Inc. for 2010 and 2011, assuming that Gregory can exercise significant influence over Handerson. 31-Dec-10 Investment in Handerson Stock 1,250,000 Cash 1,250,000 30-Jun-11 Cash 40,000 Investment in Handerson Stock 40,000
31-Dec-11 Cash 40,000 Investment in Handerson Stock 40,000 Investment in Handerson Stock 146,000 Revenue from Investment 146,000 (20% X $730,000) © At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2011? What is the total net income reported in 2011 under each of these methods? Fair Value Equity Method Method Investment amount (bal sheet) $1,350,000 $1,316,000* Dividend revenue (income statement) 80,000 0 Revenue from investment (inc. statement) 146,000 *$1,250,000 + $146,000 – $40,000 – $40,000
E17-17 (Equity Method) On January 1, 2010, Meredith Corporation purchased 25% of the common shares of Pirates Company for $200,000. During the year, Pirates earned net income of $80,000 and paid dividends of $20,000. Instructions: Prepare the entries for Meredith to record the purchase and any additional entries related to this investment in Pirates Company in 2010.
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- Fall '09
- unrealized holding gain, Available-for-Sale Securities, Trading Securities