Company C had outstanding 30,000 common shares. On January 1, 2015, Company D purchased some of these shares as a non- current investment at $ 25 per share. At the end of 2015, Company C reported the following: profit, $ 50,000, and cash dividends declared and paid during the year, $ 25,500. The market value of Company C stock at the end of 2015 was $ 22 per share.
Required:
1. For each of the following cases ( in the tabulation), identify the method of accounting that Company D should use. Explain why.
2. Prepare the journal entries for Company D 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:

3. Complete the following schedule to show the separate amounts that should be reported on the 2015 financial statements of Company D:

Transcribed Image Text:

Case A: Case B: 3,600 Shares 10,500 Shares Purchased Purchased Tabulation of Items 1. Accounting method: 2. Journal entries: a. To record the acquisition at January 1, 2015. b. To recognize the income reported by Company C for 2015. c. To recognize the dividends declared and paid by Company C. d. To recognize fair value effect at end of 2015. Dollar Amounts Case A Case B Statement of Financial Position Investments Shareholders' equity Statement of Earnings Investment income Equity in earnings of investee