Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Brooks Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a

Brooks Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company's profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years, Brooks has had a policy of investing idle cash in equity securities.

In particular, Brooks has made periodic investments in the company's principal vendor of mining equipment, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries, Brooks does not have significant influence over the operations of Norton Industries.

Cheryl Thomas has recently joined Brooks as assistant controller, and her first assignment is to prepare the 2020 year-end adjusting entries for the accounts that are valued by the "fair value" rule for financial reporting purposes.

Thomas gathered the following information about Brooks' pertinent accounts.

1. Brooks has equity securities related to Delaney Motors and Patrick Electric. During 2020, Brooks purchased 100,000 shares of Delaney Motors for $1,400,000; these shares currently have a fair value of $1,600,000. Brooks' investment in Patrick in Electric has not been profitable; the company acquired 50,000 shares of Patrick in April 2020 at $20 per share, a purchase that currently has a value of $720,000.

2. Prior to 2020, Brooks invested $22,500,000 in Norton Industries and has not changed its holdings this year. This investment in Norton Industries was valued at $21,500,000 on Dec 31, 2019. Brooks' 12% ownership of Norton Industries has a current fair value of $22,225,000 on Dec 2020.

3. Norton reported income of $500,000 in 2020 and paid cash dividends of $100,000.

a. prepare the entries for Brooks for 2020, to reflect the application of the "fair value" rule for the securities described above.

b. prepare the entries for Brooks for 2020, assuming that Brooks owns 25% of Nortons shares.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Costing And Management

Authors: Riad Izhar, Janet Hontoir

2nd Edition

9780198328230

More Books

Students also viewed these Accounting questions

Question

How satisfied are you with this attitude?

Answered: 1 week ago

Question

Where is your key public located geographically?

Answered: 1 week ago

Question

What is the socioeconomic status of your key public?

Answered: 1 week ago