91Ó°ÊÓ

Question: P10-20A Accounting for equity investments

The beginning balance sheet of Waterfall Source Co. included a \(400,000 investment in Evan stock (20% ownership, Waterfall has significant influence over Evan). During the year, Waterfall Source completed the following investment transactions:

Mar. 3 Purchased 4,000 shares at \)11 per share of Lili Software common stock as a long-term equity investment, representing 7% ownership, no significant influence.

May 15 Received a cash dividend of \(0.61 per share on the Lili investment.

Dec. 15 Received a cash dividend of \)70,000 from Evan investment.

31 Received Evan’s annual report showing \(300,000 of net income.

31 Received Lili’s annual report showing \)120,000 of net income for the year.

31 Evan’s stock fair value at year-end was \(390,000.

31 Lili’s common stock fair value at year-end was \)12 per share.

Requirements

3. Prepare Waterfall Source’s partial balance sheet at December 31, 2018, from your answers in Requirement 2.

Step by step solution

01

Definition of Stockholder’s Equity

The section of the balance sheet reflecting the amount of capital invested by the owners is known as stockholder’s equity. It includes the amount of shares issued and retained earnings

02

Partial Balance Sheet

Investment in Evan is equal to $446,000 and investment in Lili is equal to $48,000. Both of them will be included in the asset section.

Unrealized holding gains on investment in Lili company will be reported in the equity section of the balance sheet.

Unlock Step-by-Step Solutions & Ace Your Exams!

• Full Textbook Solutions

  Get detailed explanations and key concepts

• Unlimited Al creation

  Al flashcards, explanations, exams and more...

• Ads-free access

  To over 500 millions flashcards

• Money-back guarantee

  We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91Ó°ÊÓ!