Question

On January ​1, 2018​, Wallace​, Inc. decides to invest in 7,200 shares of Dressage stock when the stock is selling for $ 20 per share. On June ​1, 2018​, Dressage paid a $ 1.00 per share cash dividend to stockholders. On December​ 31, 2018​, Dressage reports net income of $ 80,000 for 2018. Assume Dressage has 18,000 shares of voting stock outstanding during 2018 and Wallace has significant influence over Dressage.

1.	Identify what type of investment the Dressage stock is for Wallace.
2.	Journalize the transactions related to Wallace's investment in the Dressage stock during 2018.
3.	In what category and at what value would Wallace's report the investment on the December​ 31, 2018​, balance​ sheet?

REQUIREMENT 1:

Wallace​'s investment would be ________ investment.

a. a controlling interest

b. a held-to-maturity

c. a no significant influence

d. a significant influence

e. an available-for-sale

REQUIREMENT 2:

1) January ​1:Wallace Inc. decides to invest in 7,200 shares of Dressage stock when the stock is selling for $20 per share.

Debit Credit

2) June ​1: Dressage paid a $1.00 per share cash dividend to stockholders

Debit Credit

3) December​ 31: Dressage reports net income of $80,000 for 2018.

Debit Credit

REQUIREMENT 3:

In what category and at what value would Wallace​'s report the investment on the December​ 31, 2018 balance​ sheet?

Wallace would report a ___________ ( long term assets, long term liability, short term asset, short term liability)  of $ _____________on the December 31 2018 balance sheet

Answer 1

1)	Answer: Option (d) a significant influence
	% holdings in Dressage = 7200/18000 = 40%
	Holdings between 20% and 40% are deemed to having significant
	influence.
2)
Jan-01	Equity investment-Dressage (7200*$20)	144000
	Cash		144000
Jun-01	Cash (7200*$1)	7200
	Equity investment-Dressage		7200
Dec-31	Equity investment-Dressage (80000*40%)	32000
	Investment income		32000
3)	Wallace would report a long term asset of $168,800 [144000-7200+32000]
	on the December 31, 2018, Balance Sheet.
	Note: It is assumed that Wallace has intention to hold the securities
	for a long period. If not, then it should be classified as short term asset.