Investment HW

Company accounting policies:

1. Mr.Speakers rounds all transactions to the nearest dollar.

2. All depreciation and intangible asset amortization is taken as one full year in the initial year of service for GAAP financial accounting purposes.

3. FIFO inventory method.

4. Restricted stock is accounted for using the Additional Consideration method outlined in your textbook on page 1141 (i.e., no other method is acceptable for this assignment).

On February 1st 2018, Mr.Speakers considered its cash position and strategic plan, and decided that it should begin investing in other companies. To begin with, Mr.Speakers buys substantial amounts of copper wire, and has decided that it might make sense to buy stock in the company that provides the wire, Crown Cabling, Inc. Second, Mr.Speakers is interested in partnering with another company to share marketing costs. They have identified Cavalli Audio as a perfect partner Cavalli makes high quality headphone amps that pair well with Mr.Speakers headphones and accessories. To cement a partnership and a strong working relationship, Mr.Speakers has decided in to invest in Cavalli, Inc. and will buy a 25% stake in Cavalli.

1) On 2/1/2018, Mr.Speakers purchased 1,000 shares of Crown Cabling, Inc. for $30 per share. This purchase represents just 1% of Crown Cablings outstanding common shares. Crown Cabling is a strong company, and Mr.Speakers intends to hold the stock until circumstances or changes in their strategic plan force them to sell.

2) Also on 2/1/2018, Mr.Speakers purchased 2,000 shares of Cavalli Audios common stock for $100 per share. This investment means that Mr.Speakers now owns 25% of Cavallis outstanding stock.

3) Finally, on 2/1/2018, Mr.Speakers invested in the common stock of HDTracks.com, a company selling hi-resolution music downloads. Mr.Speakers paid $7 per share for 100 shares of HDTracks. This represents less than 1% of HDTracks stock, and Mr.Speakers intends to sell the stock within one year.

4) On 3/31/2018, Crown Cabling declared a $1 per share dividend payable on 4/15/2018. Fully account for the dividend through 4/15/2018.

5) Unlike Mr.Speakers, Cavalli Audio has a 3/31 year end. On 3/31, Cavalli reported net income of $200,000, and declared a $4 per share dividend, payable on 4/30/2018. Fully account for this information through 4/30/2018.

6) On 5/1/2018, Mr.Speakers sold 200 shares of Crown Cabling stock for $40 per share.

7) On 12/31/2018, the market value of the Cavalli Audio stock was $105 per share. The value of the Crown Cabling stock was $35 per share, and the value of the HDTracks stock was $5 per share.

8) Calculate the net income effect (through 12/31/2018) of Mr.Speakers investment in Crown Cabling.

9) Calculate the net income effect (through 12/31/2018) of Mr.Speakers investment in Cavalli Audio.

10) Calculate the net income effect (through 12/31/2018) of the HDTracks stock.