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EXAM PLE 'El. 2 Equitv Method Securities Cadet, Inc. buvs and sells and equitv securities of other companies as investments. Cadet's scal vear- end...


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please help me solve example 9.2 and 9.3 and I want to know why the balance in the investment in sky account was 522,500 and how to get all values for example 9.3


show detail like use which number-which number and calculation process! do not just copy and paste what I shows on picture!

And may be you need the information from example 9.1 so I post 9.1 also

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please give me the explain not just the result!

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EXAM PLE 'El. 2
Equitv Method Securities Cadet, Inc. buvs and sells and equitv securities of other companies as investments. Cadet’s fiscal vear-
end is December 31. Cln June 1, 2016, Cadet purchased 1,000 shares of Skv Co. common stock for $500,000; after this transaction, Cadet owned 30% of Slcv's outstanding voting stock. On December 31, 2016, Cadet
received a dividend of $1500 from Skv, and Sky’s net income for this period was $100,000. The investment in Sin! was sold on Januaryr 12, 201?, for $430,000. How will Cadet record the investment in Slqr if the shares are considered equity method securities? Because Cadet owns 30% of the outstanding voting stock of Sicv, this investment will be accounted for using the EH13? "Blind . However, the initial purchase is alwavs recorded at hm 005‘ . Therefore, the investment will be recorded in a manner identical to that in Ella rn pie 9. 1. What adjustments will Cadet reoord on December 31, 2016, assuming the investment in Sliv has a fair market value of $450,000".-I Because these investments are classified as ec|uit'.uI method securities, any.r unrealized gainfloss due to
changes in fair market value are W at December 31. Instead, the investor will adjust its investment account for it: share of the investee’s net income [loss]: limit!!! This amount will directly.r im the investment account Additionallv, the corn panv will MEI-E its investment account for any.r dividends it receives, which are considered a return of capital. Therefore, the financial statements will be affected in the following manner: BALANCE SHEET Pluto IH'EDIIIE STATEMENT SI'IAIIEHDIDERS’ EQUITY
LIMIILITIES + mm: 5"1'llll'flr'i'illll REVENUES — EXPENSES llTllllIlllE After the transaction above, the balance in the investment in Sky account was $522.5”! .

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EXAM PLE 9.3
Wholly-{luv rl ed Investments Denim Corp. acquires 100% of the outstanding voting shares of l0range Co. To obtain these shares,
Denim pavs $420,000 in cash and issues 5,000 shares of its $10 par value common stock. On this date,
Denim’s stock has a fair value of $22 per share, and Orange“ book value of stockholders’ eclluit'glr is $560,000.
Denim is willing to pal.r $230,000 for a companyr with a book value of eqult'f of $500,000 because it believes: [a] Orange's buildings are undervalued bv $30,000
lb} Grange has an unrecorded patent that Denim values at $60,000 Denim considers the remaining balance sheet items to be tairlv valued Ei.e_, thew:I represent Fair market value]. The remaining $50,000 of the purchase price is ascribed to corporate svnergies and other general
unidentifiable intangible assets [i.e., goodwill]. Prepare a consolidated balance sheet for Denim Companv. _ investors . .
Denlm Grange Consolldatlng
Co rp. Co. Adjustme nts Consolidated Cash 15 0,000 00,000 2301100
Receivables 320,000 130,000 InventorvI 45 0,000 200,000 Investment in Orange Co. 250,000 — Land 200,000 120,000 Buildings, net 000,000 220,000 Equipment, net 250,000 100,000
Patent — — Goodwill — — Total assets 2,95 0,000 050,000 Accou nts pavable 320,000 50,000
Long-term liabilities TIE-0,000 340,000
Com mon stock 1,000,000 30,000
Additional paid-in ca pital 150,000 — Retained earnings 220,000 400,000 Total liabilities E: shareholders' equitv 2,950,000 050,000

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EKAM PLE 9. 1
Passive Investments Cadet, Inc. buvs and sells and enquitvI securities of other companies as investments. Cadet’s fiscal 1.I'ear-
end is December 31. On June 1, 2016, Cadet purchased 1,000 shares of Skv Co. common stock for $500,000;
after this transaction, Cadet owned 5% of Strv's outstanding voting stock. On December 31, 201-6, Cadet
received a dividend of $2,500 from 5hr. The investment in Sin! was sold on Januarv 12, 201?, for $420,000. How will Cadet record the original investment in Skv? Because Cadet owns only.r 59E. of the outstanding voting stock of Skv, this investment is considered
passwe and its initial purchase is recorded at hls’lflncal mm _ Therefore,
this investment will have the following ef'Fect o n Cadet's financial statements: BALANCE SHEET INCOME STATEMENT
ASSETS SI'IAREHDIJERS’ EQUI'IT
Cash mm = LIABILITIES + WW wall-31" REVENUES — EXPENSES IEI'INCCINIE ammo ammo
mh 'lwosl'nant in sky: What adjustments will Cadet reoord on December 31, 2016, assuming the investment in Skv has a fair
market value of $450,000? Because these investments are classified as passive, anyr unrealized gain or loss will be recorded in the
inmrne Wt at December 31. We can determine the gainfloss by comparing the investments’ fair m a rket value to its sta le valuatjo n, which in this case is the historical cost recognized above:
stsnavsisation 45mm] — anon sauna loss will be recorded on the financial state ments as follows: BALANCE SHEET Elm INEDIIIE STATEMENT
SI-IAREHDIJERS’ EQUI'IT LIABILITIES + WW WEN-31' REVENUES — EXPENSES Additionally, the company:I will report 5?,500 of dividerfl revenue in net income.

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EXAM PLE 9.1
Passive Investments How will Cadet record the sale at film stuck on January 12, Elli}? When passive investments are Sflld, the realm-d gainfloss will be recorded in the income statement . We can determine the gain or loss as follows: 4mm!) 450ml) mum 95"" will be recorded an the financial statements as follows: BALANCE SHEET Fl INCOME STATEMENT ASSETS SI'IMEI'IDLIJEHS’ EQUITY
Wile-Fm LIABILITIES + |flII-IliIlI-I'Iiillll'll' wail“ REVENUES — EXPENSES IEI'IIIIIIIIE mum 21),“ 31'“
Nl aim" sde

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