Assessing Financial Statement Effects of Passive and Equity Method Investments On January 1, 2016, Ball Corporation purchased, as a stock investment, 14,000 shares of Leftwich Company common stock for $15 cash per share. On December 31, 2016, Leftwich announced net income of $88,000 for the year and paid a cash dividend of $1.10 per share. At December 31, 2016, the market value of Leftwich's stock was $19 per share. a. Assume that the stock acquired by Ball represents 15% of Leftwich's voting stock and that Ball classifies it as available-for-sale. For the following transactions, (1) prepare journal entries, (2) post those journal entries to their respective T-accounts, and (3) record each of the transactions in the financial statement effects template. (1) Ball purchased 14,000 common shares of Leftwich at $15 cash per share; the shares represent a 15% ownership in Leftwich (2) Leftwich reported annual net income of $88,000 (3) 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. Available-for-Sale Securities: If no entry is required, select "No entry" for both the debit and credit account title. Description (1) Investment in Leftwic Cash Debit 210,000 o ov 0 Credit 0 210,000 0 0 (2) No entry No entry 0x 0 or 15,400 (3) Cash Dividend income (4) Investment in Leftwic Unrealized gain . OX Cash (A) 0 0 0x 0 Investment in Leftwich Co. (A) 210,000 0 0 210,000 x Unrealized Gain (AOCI) 07 0 0 0 0 x (1) Dividend Income (R) 0 0 0 0 15,400 01 0 Income Statemen Revenues - Expenses Balance Sheet Cash Asset + Noncash Assets = 0x + $ 0x = $ 0 + 0 x + 0 x = Transaction (1) Purchase common shares (2) Recognize share of Leftwich income (3) Receive a cash dividend of $1.10 per share (4) Recognize increase in investment value at year end 0 Liabilities O O O O + Contrib. Capital + Earned Capital + $ 0 + $ ov + 0 + 0 + OX + O + OX 0 0- OX- 0 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. For the same four transactions as above, (1) prepare journal entries, (2) post those journal entries to their respective T-accounts, and (3) record each of the transactions in the financial statement effects template. (1) Ball purchased 14,000 common shares of Leftwich at $15 cash per share; the shares represent a 15% ownership in Leftwich (2) Leftwich reported annual net income of $88,000 (3) 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
