Illinois Exchange Company completed the following long-term investment transactions during 2014: 2014 May 12 Purchased 28,000 shares,

Question:

Illinois Exchange Company completed the following long-term investment transactions during 2014:

2014

May 12 Purchased 28,000 shares, which make up 35% of the common stock of Brentwood Corporation at total cost of $420,000.

Jul 9 Received annual cash dividend of $1.25 per share on the Brentwood investment.

Sep 16Purchased 800 shares of Detroit, Inc., common stock as an available-for-sale investment, paying $41.75 per share.

Oct 30 Received cash dividend of $0.39 per share on the Detroit investment.

Dec 31 Received annual report from Brentwood Corporation. Net income for the year was $475,000.

At year-end, the fair value of the Detroit stock is $31,600. Te fair value of the Brentwood stock is $656,000.

Requirements

1. For which investment is fair value used in the accounting? Why is fair value used for one investment and not the other?

2. Show what Illinois Exchange would report on its year-end balance sheet, income statement, and statement of other comprehensive income for these investment transactions. It is helpful to use a T-account for the Equity-method Investment account. Ignore income tax.

Common Stock
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