Gioia Company acquired some of the 65,000 shares of outstanding common stock (no par) of Tristezza Corporation

Question:

Gioia Company acquired some of the 65,000 shares of outstanding common stock (no par) of Tristezza Corporation during 2011 as a long-term investment. The annual accounting period for both companies ends December 31. The following transactions occurred during 2011:

Jan. 10 Purchased 17,875 shares of Tristezza common stock at $11 per share.

Dec. 31 (a) Received the 2011 financial statements of Tristezza Corporation that reported net income of $80,000.

(b) Tristezza Corporation declared and paid a cash dividend of $0.60 per share.

Required:

1. What accounting method should the company use? Why?

2. Give the journal entries for each of these transactions. If no entry is required, explain why.

3. Show how the long-term investment and the related revenue should be reported on the 2011 financial statements (balance sheet and income statement) of the Gioia Company.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... 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... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... 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...