Refer to the facts in the previous question (P7-20). Record the journal entries appropriate for True Worth’s three investments beginning with the initial purchase.
In exercise
a. True Worth bought 20,000 shares of MasterTrade, a supplier of equipment for construction and renovation. With in-depth knowledge of the hardware retailing business, True Worth’s management believes that MasterTrade’s shares are undervalued and that the company could make a quick profit selling the shares within the next 12 months. True Worth purchased the shares at a price of $42 each, and received $0.50 per share of dividends during the year. The shares traded at $46 at the fiscal year-end.
b. The company purchased 6,000 units of a mutual fund which cost $22 each. Management had no specific trading intentions for this investment; rather, it was a means of parking excess cash. At the end of the year, the units had a quoted market value of $21.
c. At the beginning of the year, True Worth bought 25% of the common shares in Unique Tools, one of its smaller suppliers, for $3 million. These shares had a fair value of $3.2 million at the end of the year. During the year, Unique Tools had profits of $800,000 and paid dividends of $160,000.
Required:
Determine how True Worth should report the above investments in its financial statements. Include both effects on the balance sheet and the statement of comprehensive income.