Question

On January 1, 2021 M.T. Glass purchased the following investments: 1. 7,500 shares (representing 15%) of...

On January 1, 2021 M.T. Glass purchased the following investments:

1.  7,500 shares (representing 15%) of ZZ Company stock for $98,000
2.  25,000 shares (representing 40%) of AA Company stock for $440,000

M.T. Glass recorded the sale of some of its investments in 2022 as follows:

1.  September 1 sold 5,000 shares of the ZZ Company stock for $76,000
2.  December 31 sold 4,000 shares of the AA Company stock for $120,000

AA Company and ZZ Company reported the following information for the years
2021 and 2022:

                                         AA Company          ZZ Company
Net income in 2021                        $260,000            $200,000
Dividends paid to M.T. Glass in 2021      $24,000             $15,000
Market value at Dec 31, 2021              $27 per share       $22 per share

Net income in 2022                        $160,000            $225,000
Dividends paid to M.T. Glass in 2022      $41,000             $5,000
Market value at Dec 31, 2022              $24 per share       $28 per share

Calculate the balance in the Investment in AA Company account at
December 31, 2021.

Homework Answers

Answer #1

The Reqirement of the question is to calculate the balance in Investment in AA Company account at "December 31, 2021"

Since the Sale of some Investments were made in 2022 they will not affect the balance of investments as at 31st December 2021 also the Divedend received by MT Glass company would form a part of the Income received as MT Glass Company were holding the same throughout the year hence it would not affect the balance in the Investment Account (AA Company Shares)

Therefore the balance of Investment in AA Company account would be that of 25,000 Shares Purchased on 1st January 2021, the same no of shares will be valued at its cost price only on 31st December 2021 since it being lower than that of the market value of $27 per share hence the balance in the investment account of AA company shares would be 25,000 shares of $17.6 per share Total amount being $4,40,000.  

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