Devin Company, which began operations on January 3, 2009, had the following subsequent transactions and events in its long-term investments.
2009
Jan. 5 Devin purchased 25,000 shares (25% of total) of Bloch’s common stock for $401,000.
Aug. 1 Bloch declared and paid a cash dividend of $1.10 per share.
Dec. 31 Bloch’s net income for 2009 is $164,000, and the fair value of its stock is $17.50 per share.
2010
Aug. 1 Bloch declared and paid a cash dividend of $1.30 per share.
Dec. 31 Bloch’s net income for 2010 is $156,000, and the fair value of its stock is $19.25 per share.
2011
Jan. 8 Devin sold all of its investment in Bloch for $550,000 cash.
Part 1
Assume that Devin has a significant influence over Bloch with its 25% share.
Required
1. Prepare journal entries to record these transactions and events for Devin.
2. Compute the carrying (book) value per share of Devin’s investment in Bloch common stock as reflected in the investment account on January 7, 2011.
3. Compute the net increase or decrease in Devin’s equity from January 5, 2009, through January 8, 2011, resulting from its investment in Bloch.
Part 2
Assume that although Devin owns 25% of Bloch’s outstanding stock, circumstances indicate that it does not have a significant influence over the investee and that it is classified as an available-for-sale security investment.
Required
1. Prepare journal entries to record these transactions and events for Devin. Also prepare an entry dated January 8, 2011, to remove any balance related to the fair value adjustment.
2. Compute the cost per share of Devin’s investment in Bloch common stock as reflected in the investment account on January 7, 2011.
3. Compute the net increase or decrease in Devin’s equity from January 5, 2009, through January 8, 2011, resulting from its investment in Bloch.