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Chapter 10: Q16E_2 (page 571)

Classifying and accounting for equity investments

Boston Today Publishers completed the following investment transactions during 2018 and 2019:

2018

Dec. 6 Purchased 2,500 shares of Loveable stock at a price of \(24.00 per share, intending to sell the investment next month. Boston did not have significant influence over Loveable.

23. Received a cash dividend of \)1.50 per share on the Loveable stock.

31. Adjusted the investment to its market value of \(11.00 per share.

2019

Jan. 27 Sold the Loveable stock for \)18.20 per share.

Requirements

On December 31, 2018, how would the Loveable stock be classified and at what value would it be reported on the balance sheet?

Short Answer

Expert verified

The investment will be recorded as current assets equal to$27,500.

Step by step solution

01

Definition of Current Assets

The resources being held for converting them into cash within the operating period are known as current assets. These assets include prepaid expenses, receivables and short-term investments.

02

Reporting Investment on the Balance Sheet

The investment made in Loveable stock will be reported on the asset side and classified as a current asset because the company wishes to sell the investment next month.

It will be reported at its fair value of $27,500.

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Most popular questions from this chapter

Accounting for equity investments

On January 1, 2018, Bark Company invests \(10,000 in Roots, Inc. stock. Roots pays Bark a \)400 dividend on August 1, 2018. Bark sells the Roots鈥檚 stock on August 31, 2018, for $10,450. Assume the investment is categorized as a short-term equity investment and Bark Company does not have significant influence over Roots, Inc.

Requirements

1. Journalize the transactions for Bark鈥檚 investment in Roots鈥檚 stock.

Question: P10-22B Classifying and accounting for debt and equity investments

Captain Transfer Corporation generated excess cash and invested in securities as follows:

2018

Jul. 2 Purchased 4,200 shares of Naradon, Inc. common stock at \(13.00 per share. Captain Transfer plans to sell the stock within three months, when the company will need the cash for normal operations. Captain Transfer does not have significant influence over Naradon.

Aug. 21 Received a cash dividend of \)0.40 per share on the Nardon stock investment.

Sep. 16 Sold the Naradon stock for \(13.70 per share.

Oct. 1 Purchased a Purple bond for \)40,000 at face value. Captain Transfer classifies the investment as trading and short-term.

Dec. 31 Received a \(600 interest payment from Purple.

31 Adjusted the Purple bond to its market value of \)44,000.

Requirements

3. Prepare T-accounts for the investment assets, and show how to report the investments on Captain Transfer鈥檚 balance sheet at December 31, 2018.

Computing rate of return on total assets

Montane Exploration Company reported these figures for 2018 and 2017:

Income statement: Partial

2018

2017

Interest expenses

\(16,700,000

\)16,500,000

Net income

16,900,000

20,200,000

Balance sheet: Partial

Dec 31, 2018

Dec 31, 2017

Total assets

\(316,000,000

\)420,000,000

Compute the rate of return on total assets for 2018. (Round to two decimals.)

Classifying and accounting for equity investments

Boston Today Publishers completed the following investment transactions during 2018 and 2019:

2018

Dec. 6 Purchased 2,500 shares of Loveable stock at a price of \(24.00 per share, intending to sell the investment next month. Boston did not have significant influence over Loveable.

23. Received a cash dividend of \)1.50 per share on the Loveable stock.

31. Adjusted the investment to its market value of \(11.00 per share.

2019

Jan. 27 Sold the Loveable stock for \)18.20 per share.

Requirements

1. Journalize Boston Today鈥檚 investment transactions. Explanations are not required.

On May 15, 2018, Mayer Co. invests \(8,000 in John, Inc. stock. John pays Mayer a \)200 dividend on November 15, 2018. Mayer sells the John stock on December 10, 2018, for $7,500. Assume the Mayer Co. does not have significant influence over John, Inc. Journalize the 2018 transactions related to Mayer鈥檚 investment in John stock.
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