Concept introduction:
Fair Value Method: Fair market value method is applied when there is less than 20% share in company. In fair market value method we value the investment on its market value and difference is recorded in the income statement as a profit or loss.
Equity Method: In equity method we value the investment on the basis of their proportionate share in the assets of the investee company. Equity method applies when there is at least 20% share holding in the company. When there is 20% holding in any company then we have a significant control over the company.
Requirement 1:
To calculate:
Concept introduction:
Fair Value Method: Fair market value method is applied when there is less than 20% share in company. In fair market value method we value the investment on its market value and difference is recorded in the income statement as a profit or loss.
Equity Method: In equity method we value the investment on the basis of their proportionate share in the assets of the investee company. Equity method applies when there is at least 20% share holding in the company. When there is 20% holding in any company then we have a significant control over the company.
Requirement 2:
To calculate:
Journal entry to record the investment.
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Cornerstones of Financial Accounting
- Waseca Company had 5 convertible securities outstanding during all of 2019. It paid the appropriate interest (and amortized any related premium or discount using the straight line method) and dividends on each security during 2019. Each of the convertible securities is described in the following table: Additional data: Net income for 2019 totaled 119,460. The weighted average number of common shares outstanding during 2019 was 40,000 shares. No share options or warrants arc outstanding. The effective corporate income tax rate is 30%. Required: 1. Prepare a schedule that lists the impact of the assumed conversion of each convertible security on diluted earnings per share. 2. Prepare a ranking of the order in which each of the convertible securities should be included in diluted earnings per share. 3. Compute basic earnings per share. 4. Compute diluted earnings per share. 5. Indicate the amount(s) of the earnings per share that Waseca would report on its 2019 income statement.arrow_forwardDuring 2021, Anthony Company purchased debt securities as a long-term investment and classified them as trading. All securities were purchased at par value. Pertinent data are as follows: The net holding gain or loss included in Anthonys income statement for the year should be: a. 0 b. 3,000 gain c. 9,000 loss d. 12,000 lossarrow_forwardInvestments On October 4, 2019, Collins Company purchased 100 bonds of Steph Company for 6,400 as a short-term investment in securities classified as available for sale. On December 31, 2019, the bonds had a fair value of 6,300, and on February 8, 2020, Collins sold the bonds for 6,700. Required: In journal entry form, prepare the spreadsheet entries to record these transactions for Collins Companys 2019 and 2020 statement of cash flows.arrow_forward
- Refer to the information in RE13-11. Assume that on December 31, 2019, the investment in Cornett Company stock has a market value of 10,500. Prepare the year-end journal entry to record the unrealized gain or loss.arrow_forwardNet Income and Comprehensive Income At the beginning of 2019, JR Companys shareholders equity was as follows: During 2019, the following events and transactions occurred: 1. JR recognized sales revenues of 108,000. It incurred cost of goods sold of 62,000 and operating expenses of 12,000, 2. JR issued 1,000 shares of its 5 par common stock for 14 per share. 3. JR invested 30,000 in available-for-sale securities. At the end of the year, the securities had a fair value of 35,000. 4. JR paid dividends of 6,000. The income tax rate on all items of income is 30%. Required: 1. Prepare a 2019 income statement for JR which includes net income and comprehensive income ignore earnings per share). 2. For 2016 prepare a separate (a) income statement (ignore earnings per share) and (b) statement of comprehensive income.arrow_forwardRefer to the information in RE13-5. Assume that on December 31, 2019, the investment in Smith Corporation bonds has a market value of 12,500. Prepare the year-end journal entry to record the unrealized gain or loss.arrow_forward
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