Question

Change to Equity Method On January 1, 2018, Lion Company paid $600,000 for 10,000 shares of...

Change to Equity Method

On January 1, 2018, Lion Company paid $600,000 for 10,000 shares of Wolf Company's voting common stock, which was a 10% interest in Wolf. Lion does not have the ability to exercise significant influence over the operating and financial policies of Wolf. Lion received dividends of $1.00 per share from Wolf on October 2, 2018. Wolf reported net income of $400,000 for the year ended December 31, 2018, and the ending market price of its shares was $62.

On July 2, 2019, Lion paid $1,920,000 for 30,000 additional shares of Wolf's voting common stock, which represents a 30% investment in Wolf. The fair values of all of Wolf's assets, net of liabilities, were equal to their book values of $6,400,000. As a result of this transaction, Lion has the ability to exercise significant influence over the operating and financial policies of Wolf. Lion received dividends of $1.00 per share from Wolf on April 2, 2019, and $1.30 per share on October 1, 2019. Wolf reported net income of $500,000 for the year ended December 31, 2019, and $200,000 for the 6 months ended December 31, 2019.

Required:

  1. For Lion, show the dividend income for 2018, as well as the December 31, 2018, unrealized holding gain or loss for the trading securities and carrying value of the investment account.
    Dividend income for 2018 $  
    12/31/18 unrealized holding gain for trading securities $  
    12/31/18 carrying value of investment $  

  2. Assuming that Lion issues comparative financial statements for 2018 and 2019, show the investment income for 2018 and 2019, as well as the December 31, 2018 and 2019 carrying value of the investment account.
    Investment income for 2018 $  
    Investment income for 2019 $  
    12/31/19 carrying value $  
Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
For Lion, the dividend income for 2018, as well as the December 31, 2018, unrealized holding gain or loss for the trading securities and carrying value of the investment account.
Dividend Income for 2018 $ 10,000 ( 10,000 x 1 )
Unrealized holding gain for trading securities $ 20,000 ( 10,000 x 62 ) - 600,000
Carrying value of investment $ 620,000 (10,000 x 62 )
Lion issues comparative financial statements for 2018 and 2019, show the investment income for 2018 and 2019, as well as the December 31, 2018 and 2019 carrying value of the investment account.
Year Investment Income Working
2018 $ 10,000 Dividend Income
2019 $ 200,000 Share of Net income ( 500,000 x 40%)
Year Carrying Amount Working
2018 $ 620,000 Fair Value
2019 $ 768,000 ( 620,000 + 200,000 - ( 40,000 x 1.3 ) )
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
On January 1, 2018, Company A paid $150,000 for 15,000 shares of Company B Company at...
On January 1, 2018, Company A paid $150,000 for 15,000 shares of Company B Company at $10 per share. This purchase gave Company A 15% ownership of Company B. In 2018, Company B reported net income of $180,000 and paid dividends to all shareholders of $50,000. The market value of Company B shares at December 31, 2018 was $12 per share. On January 1, 2019 Company A purchased an additional 25,000 shares (25%) of Company B. This last purchase gave...
On January 4, 2018, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling...
On January 4, 2018, Runyan Bakery paid $324 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery's operations. Runyan chose the fair value option to account for this investment. Runyan received dividends of $2.00 per share on December 15, 2018, and Lavery reported net income of $160 million for the year ended December 31, 2018....
On January 1, 2018, Hoosier Company purchased $944,000 of 10% bonds at face value. The bond...
On January 1, 2018, Hoosier Company purchased $944,000 of 10% bonds at face value. The bond market value was $987,000 on December 31, 2018. Required: Prepare the appropriate journal entry on December 31, 2018, to properly value the bonds assuming the bonds are classified as: (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Trading securities. Securities available for sale. Held-to-maturity securities. Record the unrealized holding gain or loss for trading...
On January 4, 2018, Runyan Bakery paid $354 million for 10 million shares of Lavery Labeling...
On January 4, 2018, Runyan Bakery paid $354 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery's operations. Runyan received dividends of $2.30 per share on December 15, 2018, and Lavery reported net income of $300 million for the year ended December 31, 2018. The market value of Lavery's common stock at December 31, 2018,...
On January 4, 2018, Runyan Bakery paid $336 million for 10 million shares of Lavery Labeling...
On January 4, 2018, Runyan Bakery paid $336 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery's operations. Runyan received dividends of $2.50 per share on December 15, 2018, and Lavery reported net income of $210 million for the year ended December 31, 2018. The market value of Lavery's common stock at December 31, 2018,...
On January 2, 2018, Alpaca Company purchased 14,000 shares of the stock of Zebra Company, and...
On January 2, 2018, Alpaca Company purchased 14,000 shares of the stock of Zebra Company, and did not obtain significant influence.  The investment is intended as a long-term investment.  The stock was purchased for $12 per share, and represents a 10% ownership stake.  Zebra Company made $55,000 of net income in 2018, and paid dividends of 50 cents per share on December 15, 2018.  On December 31, 2018, Zebra Company's stock was trading on the open market for $15 per share at the end...
On January 2, 2018, RF Company purchased 14,000 shares of the stock of Zebra Company, and...
On January 2, 2018, RF Company purchased 14,000 shares of the stock of Zebra Company, and did not obtain significant influence.  The investment is intended as a long-term investment.  The stock was purchased for $12 per share, and represents a 10% ownership stake. Zebra Company made $55,000 of net income in 2018, and paid dividends of 50 cents per share on December 15, 2018.  On December 31, 2018, Zebra Company's stock was trading on the open market for $15 per share at the...
On January 2, 2018, All Good Company purchased 5,000 shares of the stock of Big Bad...
On January 2, 2018, All Good Company purchased 5,000 shares of the stock of Big Bad Company, and DID NOT obtain significant influence. The investment is intended as a long-term investment. The stock was purchased for $10 per share, and represents a 10% ownership stake. Big Bad Company made $250,000 of net income in 2018, and paid dividends to All Good Company of $12,500 on December 15, 2017. On December 31, 2017, Big Bad Company's stock was trading on the...
On January 2, 2018, Baltimore Company purchased 10,000 shares of the stock of Towson Company at...
On January 2, 2018, Baltimore Company purchased 10,000 shares of the stock of Towson Company at $14 per share. Baltimore obtained significant influence as the purchase represents a 30% ownership stake in Towson Company. On August 1, 2018, Towson Company paid cash dividends of $17,000. Baltimore Company intended this investment to a long-term investment. On December 31, 2018, Towson Company reported $60,000 of net income for FY 2018. Additionally, the current market price for Towson Company's stock increased to $25...
On January 2, 2018, Baltimore Company purchased 10,000 shares of the stock of Towson Company at...
On January 2, 2018, Baltimore Company purchased 10,000 shares of the stock of Towson Company at $10 per share. Baltimore obtained significant influence as the purchase represents a 40% ownership stake in Towson Company. On August 1, 2018, Towson Company paid cash dividends of $15,000. Baltimore Company intended this investment to a long-term investment. On December 31, 2018, Towson Company reported $75,000 of net income for FY 2018. Additionally, the current market price for Towson Company's stock increased to $25...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT