Fair Value and Equity Method Compared) Gregory Inc. acquired 20% of the outstanding common stock of Henderson

Question:

Fair Value and Equity Method Compared) Gregory Inc. acquired 20% of the outstanding common stock of Henderson Inc. on December 31, 2010. The purchase price was $1,250,000 for 50,000 shares. Henderson Inc. declared and paid an $0.80 per share cash dividend on June 30 and on December 31, 2011. Henderson reported net income of $730,000 for 2011. The fair value of Henderson’s stock was $27 per share at December 31, 2011.

(a) Prepare the journal entries for Gregory Inc. for 2010 and 2011, assuming that Gregory cannot exercise significant influence over Henderson. The securities should be classified as available for- sale.

(b) Prepare the journal entries for Gregory Inc. for 2010 and 2011, assuming that Gregory can exercise significant influence over Henderson.

(c) At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2011? What is the total net income reported in 2011 under each of these methods?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...