The following information pertains to Yankee Corp’s investment portfolio.
On August 1, 2015 Yankee Corp used cash to purchase 10,000 shares of common stock in Shakespeare Inc. for $20/share.
Yankee’s ownership stake in Shakespeare is approximately 2%.
Although Yankee is open to the possibility of selling the investment, they are not actively trying to sell it in the next 1-3 months.
As of September 30, 2015, the Wall Street Journal indicates that the market value of the shares is $21/share.
As of December 31, 2015, the Wall Street Journal indicates that the market value of the shares is $18/share.
Propose the journal entries at each of the dates below (if a JE is necessary.) If a journal entry is not necessary, explain why not. Show your work. Responses to short answer questions should be between 2-5 sentences.
August 1, 2015:
September 30, 2015:
December 31, 2015:
How would the accounting be different if they were actively trying to sell the security within the next 1-3 months?
How would the accounting be different if their ownership stake represented 40% of Shakespeare Inc. and Yankee was able to exert influence on Shakespeare’s decision making? What about a 60% interest?
Part A:when they ar not actively trading for 1-3 months
Yankee co. is purchasing shares of Shakespher co. on august 1 , if they are not actively trading for for 1-3 months
entries will be
| Date | Particulars | Debit | Credit |
| Aug 1 | Availabe for sale secuirities-shakesphere Inc. | $200,000 | |
| Cash(10,000 * $20) | $200,000 | ||
| Sept 30 | No entry | ||
| (Even though Wall street is bullish on Shakesphere Inc. | |||
| yankee co. is not actively trading for 1-3 months , so it will not sell the share) | |||
| DEC 31 | No entry | ||
| Wall street is bearish on shakesphere inc. and is trading for $18/share wich is less than $20/share , there is no point in making a loss , by selling shares at $18/share |
B)If co. Is actively trading august entry will remain same for purchase , you would seel shares on sept. 30,2015
following entry takes Place:
| Date | Particulars | Debit | Credit |
| Sept. 30 ,2015 | Cash(10,000 shares *$21) | $210,000 | |
| Availabe for sale secuirities-shakesphere Inc. | $200,000 | ||
| Gain on sale of securities | $10,000 | ||
Agan december 31 is no entry as no shares exist on that date
C)When Yankee Co. has significant influence over Shakesphere
Inc. but not majority voting power—Yankee Co. accounts for its
investment in Shakesphere Inc. using the equity method of
accounting. Shakesphere Inc. is considered an unconsolidated
subsidiary of Yankee Co. in such circumstances, from Yankee Co.'s
perspective, but could be a freestanding, publicly traded
corporation.
A company is generally considered to have significant influence,
but not control, when it owns 20% – 50% of the voting interest in
the unconsolidated subsidiary. The company does not actually record
the subsidiary's assets and liabilities on its balance sheet.
Rather, the Investment in Affiliate (or Equity Investment)
non-current asset account on the balance sheet serves as a proxy
for the Yankee Co.'s economic interest in Shakesphere Inc.'s assets
and liabilities.
| Date | Particulars | Debit | Credit |
| Aug 1 | Investment In Affliliate-shakesphere Inc. | $200,000 | |
| Cash(10,000 * $20) | $200,000 | ||
D)For more than 60% it becomes your subsidiary the you will account for it as follows:
| Date | Particulars | Debit | Credit |
| Aug 1 | Investment In subsidiary | $200,000 | |
| Cash | $200,000 |
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