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Part 4: Investment in Stocks (Equity Securities) Gremlin, Inc. has decided to purchase shares of common...

Part 4: Investment in Stocks (Equity Securities)

Gremlin, Inc. has decided to purchase shares of common stock of Imogene Company. On December 31, 2019, Imogene had 100,000 shares of common stock outstanding.

Required

Compute the requested amounts under each of the following separate scenarios:

  1. Gremlin acquired a 10% interest in Imogene (10,000 common shares) on December 31, 2019 for $135,000. Imogene reported net income of $75,000 for 2020 and declared and paid cash dividends totaling $30,000 during the year. Imogene’s common stock was trading at $13 per share at December 31, 2020. At what amount would Gremlin report its investment in Imogene on its December 31, 2020 balance sheet?
  1. Gremlin acquired a 30% interest in Imogene (30,000 common shares) on December 31, 2019 for $280,000. Imogene reported net income of $75,000 for 2020 and declared and paid cash dividends totaling $30,000 during the year. Imogene’s common stock was trading at $13 per share at December 31, 2020. At what amount would Gremlin report its investment in Imogene on its December 31, 2020 balance sheet?
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Answer #1
1.) 10%-Ownership
Investment in Imogene on its December 31, 2020 $130,000 (10,000 x 13 )
( At fair value )
2.) 30%-Ownership
Amount $
Investment on December 31,2019 135,000
Add: Investment revenue ( 75,000 x 30% )       26,250
Less: Dividend received ( 30,000 x 30% )         9,000
Investment in Imogene on its December 31, 2020 152,250
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