Comparing Methods to Account for Various Levels of Ownership of Voting Stock
Company T had outstanding 25,000 shares of common stock, par value $10 per share. On January 1, 2011. Company P purchased some of these shares as a long-term investment at $25 per share. At the end of 2011, Company T reported the following: income, $45,000, and cash dividends declared and paid during the year, $16.500. The fair value of Company T stock at the end of 2011 was $22 per share.
Required:
1. For each of the following cases (in the tabulation), identify the method of accounting that Company P should use. Explain why.
2. Give the journal entries for Company P at the dates indicated for each of the two independent cases, assuming that the investments will be held long term. If no entry is required, explain why. Use the following format:
| Case A: | Case B: |
| 3,000 Shares | 8,750 Shares |
Tabulation of Items | Purchased | Purchased |
1 . Acc ount ing method ? |
|
|
2. Journal entries: |
|
|
a. To record the acquisition at January 1,2011. |
|
|
b. To recognize the income reported by Company T for 201 I. |
|
|
c. To recognize the dividends declared and paid by Company T. |
|
|
d. To recognize fair value effect at end of 2011 . |
|
|
3. Complete the following schedule to show the separate amounts that should be reported on the 2011 financial statements of Company P:
| DOLLARAMOUNTS | |
| Case A | Case B |
Balance shcet |
|
|
Investments |
|
|
Stock holde rs ' equity |
|
|
Income statement |
|
|
Dividend revenue |
|
|
Equity in earn ngs of affiliate |
|
|
4. Explain why assets,stockholders’ equity, and revenues for the two cases are different .
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.