/*! 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} Brief Exercises Fairbanks Corporation purchased ... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 12: Brief Exercises (page 610)

Fairbanks Corporation purchased 400 shares of Sherman Inc. common stock for \(13,200 (Fairbanks does not have significant influence). During the year, Sherman paid a cash dividend of \)3.25 per share. At year-end, Sherman stock was selling for $34.50 per share. Prepare Fairbanks鈥� journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustmentaccount.)

Short Answer

Expert verified

a) The amount debited to equity investment is $13,200.

b) The amount of dividend received is $1,300.

c) The gain on the investment is $600.

Step by step solution

01

Step-by-Step Solution Step 1: Definition of common stock 

Common stock is the stock in which the dividend amount is not fixed. Theamount of dividendsfluctuate.

02

 Journal entry of the purchase of the investment

Date

Description

Debit

Credit

A.

Equity Investment

$13,200

Cash

$13,200

Being entry to record the purchase of common stock

03

Journal entry for the interest received

Date

Description

Debit

Credit

B

Cash

$1,300

Investment Revenue

$1,300

Being entry of dividend received

04

Adjustment entry for the fair value

Date

Description

Debit

Credit

C

Investment in Equity*

$600

Gain on investment

$600

Being gained on the sale of common stock

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

Briefly discuss how a transfer of securities from the available-for-sale category to the trading category affects stockholders鈥� equity and income.

Use the information provided in BE12-1. Assume that at January 1, 2019, the carrying amount of the patent on Taylor Swift鈥檚 books is \(43,200. In January, Taylor Swift spends \)24,000 successfully defending a patent suit. Taylor Swift still feels the patent will be useful until the end of 2026. Prepare the journal entries to record the $24,000 expenditure and 2019 amortization.

: As a new intern for the local branch office of a national brokerage firm, you are excited to get an assignment that allows you to use your accounting expertise. Your supervisor provides you with the spreadsheet below, which contains data for the most recent quarter for three companies that the firm has been recommending to its clients as 鈥渂uys.鈥� Each of the companies鈥� returns on assets has outperformed their industry cohorts in the past. But, given recent challenges in their markets, there is concern that the companies may experience operating challenges and lower earnings. (All numbers in millions, except return on assets.)

A

B

C

D

E

Company

Fair Value of Company

Book Value (Net Assets)

Carrying Value of Goodwill

Return on Assets

Sprint Nextel

\(36,361

\)51,271

$30,718

3.5%

Washington Mutual

11,742

23,941

9,062

2.4

E* Trade Financial

1,639

4,104

2,035

5.6

Instructions

  1. The fair value for each of these companies is lower than the corresponding book value. What implications does this have for each company鈥檚 future prospects?
  2. To date, none of these companies has recorded goodwill impairments. Your supervisor suspects that they will need to record impairments in the near future, but he is unsure about the goodwill impairment rules. Is it likely that these companies will recognize impairments? Explain.
  3. Estimate the amount of goodwill impairment for each company and prepare the journal entry to record the impairment. For each company, you may assume that the book value less the carrying value of the goodwill approximates the fair value of the company鈥檚 net assets.
  4. Discuss the effects of your entries in part (c) on your evaluation of these companies based on the return on assets ratio.

Margaret Avery Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2015, the company expends \(325,000 on a research project, but by the end of 2015, it is impossible to determine whether any benefit will be derived from it.

  1. What account should be charged for the \)325,000, and how should it be shown in the financial statements?
  2. The project is completed in 2016, and a successful patent is obtained. The R&D costs to complete the project are \(130,000 (\)36,000 of these costs were incurred after achieving economic viability). The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2016 total \(24,000. The patent has an expected useful life of 5 years. Record these costs in the journal entry form. Also, record patent amortization (full year) in 2016.
  3. In 2017, the company successfully defends the patent in extended litigation at a cost of \)47,200, thereby extending the patent life to December 31, 2024. What is the proper way to account for this cost? Also, record patent amortization (full year) in 2017.
  4. Additional engineering and consulting costs incurred in 2017 required to advance the design of a new version of the product to the manufacturing stage total $60,000. These costs enhance the design of the product considerably, but it is highly uncertain if there will be a market for the new version of the product. Discuss the proper accounting treatment for this cost.

King Company is contemplating the purchase of a smaller company, which is a distributor of King鈥檚 products. Top management of King is convinced that the acquisition will result in significant synergies in its selling and distribution functions. The financial management group (of which you are a part) has been asked to analyze the effects of the acquisition on the combined company鈥檚 financial statements. This is the first acquisition for King, and some of the senior staff insist that based on their recollection of goodwill accounting, any goodwill recorded on the acquisition will result in a 鈥渄rag鈥� on future earnings for goodwill amortization. Other younger members on the staff argue that goodwill accounting has changed. Your supervisor asks you to research this issue.

Instructions

Access the IFRS authoritative literature at the IASB website (http://eifrs.iasb.org/). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following questions. (Provide paragraph citations.)

  1. Identify the accounting literature that addresses goodwill and other intangible assets.
  2. Define goodwill.
  3. Is goodwill subject to amortization? Explain.
  4. When goodwill is recognized by a subsidiary, should it be tested for impairment at the consolidated level or the subsidiary level? Discuss.
See all solutions

Recommended explanations on Business Studies Textbooks

Actuarial Science in Business

Read Explanation

Finance Literacy (Business Studies)

Read Explanation

Business Development

Read Explanation

Introduction to Business

Read Explanation

Managerial Economics

Read Explanation

Corporate Finance

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.