/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q5CA (Equity Investment) On July 1, 2... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 13: Q5CA (page 658)

(Equity Investment) On July 1, 2017, Selig Company purchased for cash 30% of the outstanding commonstock of Spoor Corporation. Both Selig and Spoor have a December 31 year-end. Spoor Corporation, whose common stock isactively traded on the NASDAQ exchange, paid a cash dividend on November 15, 2017, to Selig Company and its other stockholders.

It also reported its total net income of $920,000 to Selig Company.

Instructions

Prepare a one-page memorandum of instructions on how Selig Company should report the above facts in its December 31, 2017balance and its 2017 income statement. In your memo, identify and describe the method of valuation you recommend.

Provide rationale where you can. Address your memo to the chief accountant at Selig Company

Short Answer

Expert verified

Share in the net income is calculated by multiplying share in the company to total net income.

Step by step solution

01

Definition of equity investment

Equity investment is a type of investment in which holders of the investment are known as the company鈥檚 owners.

02

Memorandum of instructions

First of all, the company should report the amount of the dividend received in the income statement under other income.

After reporting the dividend now, the reporting of the investment income is done by the company. First of all, the company needs to calculate their share in the net income.

To calculate the share in the net income, the company multiplies their share in the company by its net income. By applying this, the amount of share is found out. After this, the investment revenue is recorded under the head of shareholder鈥檚 equity.

For this, they should need to adopt the equity method for valuation because this method is the most accurate valuation method.

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 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

(Gain on Sale of Investments and Comprehensive Income) On January 1, 2017, Acker Inc. had the followingbalance sheet.

The accumulated other comprehensive income related to unrealized holding gains on available-for-sale debt securities. The fairvalue of Acker Inc.鈥檚 available-for-sale debt securities at December 31, 2017, was \(190,000; its cost was \)140,000. No securities

were purchased during the year. Acker Inc.鈥檚 income statement for 2017 was as follows. (Ignore income taxes.)

ACKER INC.

BALANCE SHEET

AS OF JANUARY 1, 2017

Assets Equity

Cash \( 50,000 Common stock \)260,000

Debt investments (available-for-sale) 240,000 Accumulated other comprehensive income 30,000

Total \(290,000 Total \)290,000

ACKER INC.

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2017

Dividend revenue \( 5,000

Gain on sale of investments 30,000

Net income \)35,000

Instructions

(Assume all transactions during the year were for cash.)

(a) Prepare the journal entry to record the sale of the available-for-sale debt securities in 2017.

(b) Prepare the journal entry to record the Unrealized Holding Gain or Loss for 2017.

(c) Prepare a statement of comprehensive income for 2017.

(d) Prepare a balance sheet as of December 31, 2017.

Leppard Corporation Sells DVD players. The corporation also offers its customers a 4-year warranty contract. During 2017, Leppard sold 20,000 warranty contracts at \(99 each. The corporation spent \)180,000 servicing warranties during 2017. Prepare Leppard鈥檚 journal entries for (a) the sale of contracts, (b) the cost of servicing the warranties, and (c) the recognition of warranty revenue. Assume the service costs are inventory costs.

Question: Explain how trading debt securities are accounted for and reported?

(Equity Method) On January 1, 2017, Pennington Corporation purchased 30% of the common shares of Edwards

Company for \(180,000. During the year, Edwards earned a net income of \)80,000 and paid dividends of $20,000.

Instructions

Prepare the entries for Pennington to record the purchase and any additional entries related to this investment in Edwards Company

in 2017.

Question:Adriana Co., with annual net sales of $5 million, maintains a markup of 25% based on cost. Adriana鈥檚 expenses average 15% of net sales. What is Adriana鈥檚 gross profit and net profit in dollars?
See all solutions

Recommended explanations on Business Studies Textbooks

Intermediate Accounting

Read Explanation

Sales in Business

Read Explanation

Strategic Analysis

Read Explanation

Organizational Behavior

Read Explanation

Finance Literacy (Business Studies)

Read Explanation

Public Relations Business Studies

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.