Reporting Passive Investments (AP1 2-3)
During January 2011, Pareto Glass Company purchased the following securities as its long-term sccurities available for sale investment portfolio:
D Corporation Common Stock : 11,000 shares (95,000 outstanding) at $9 per share
F Corporation Bonds: $300.000 (20- year. 8 percent) purchased at par (not to be held to maturity )
Subsequent to acquisition, the following data were available :
| 2011 | 2012 |
Net income reported at December 31: |
|
|
D Corporation | $31,000 | $41,000 |
F Corporation | $360,000 | $,550,000 |
Dividends and interest paid during the year: |
|
|
D Corporation common stock divid ends (per share) | $0.70 | $ 0.80 |
F Corporation bonds interest | $24,000 | $24,000 |
Fair value at December 31: |
|
|
D Corporation common stock (per share) | $8.00 | $9.50 |
F Corporation bonds | $,280,000 | $29 0.000 |
Required:
1 . What accounting method should be used for the investment in D common stock? F bonds? Why?
2. Give the journal entries for the company for each year in parallel columns (if none. explain why) for each of the following:
a. Purchase of the investments.
b. Income reported by D and F Corporations.
c. Dividend s and interest received from D and F Corporations.
d. Fair value effects at year-end.
3. For each year. show how the following amounts should be reported on the financial statements:
a. Long-term investments.
b. Stoc kholders' equity-net unreal ized losses/gain s.
c. Revenues.
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