Assessing Financial Statement Effects of Passive and Equity Method Investments

(a) Assume that the stock acquired by Ball represents 15% of Leftwich's voting stock and that Ball classifies the investment as available-for-sale. Use the financial statement effects template (with amounts and accounts) to record the following transactions: (1) Ball purchased 10,000 common shares of Leftwich at $15 cash per share. (2) Leftwich reported annual net income of $80,000. (3) Ball received a cash dividend of $1.10 per common share from Leftwich. (4) Year-end market price of Leftwich common stock is $19 per share.

Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital
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Income Statement
Revenue	-	Expenses	=	Net Income
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(b) Assume that the stock acquired by Ball represents 30% of Leftwich's voting stock and that Ball accounts for this investment using the equity method since it is able to exert significant influence. Use the financial statement effects template (with amounts and accounts) to record the following transactions: (1) Ball purchased 10,000 common shares of Leftwich at $15 cash per share. (2) Leftwich reported annual net income of $80,000. (3) Ball received a cash dividend of $1.10 per common share from Leftwich. (4) Year-end market price of Leftwich common stock is $19 per share.

	Balance Sheet
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital
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Income Statement
Revenue	-	Expenses	=	Net Income
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