Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Johnson, an investor in Acme Co., asked Smith, CPA, for advice on the propriety of Acme's financial reporting for two of its investments. Smith obtained

Johnson, an investor in Acme Co., asked Smith, CPA, for advice on the propriety of Acme's financial reporting for two of its investments. Smith obtained the following information related to the investments from Acme's December 31, Year 9 financial statements:

  • Acme has 20% ownership interest in Kern Co., represented by 200,000 shares of outstanding common stock purchased on January 2, Year 9 for $600,000. This investment gives Acme significant influence over Kern. Acme did not elect the fair value option for this investment.
  • Acme has 20% ownership interest in Wand Co., represented by 20,000 shares of outstanding common stock purchased on January 2, Year 9 for $300,000. This investment does not give Acme significant influence over Wand. Acme did not elect the fair value option for this investment.
  • On January 2, Year 9, the carrying amounts of the acquired shares of both investments equaled their purchase prices.
  • Kern reported earnings of $400,000 for the year ended December 31, Year 9 and declared and paid dividends of $100,000 during Year 9.
  • Wand reported earnings of $350,000 for the year ended December 31, Year 9 and declared and paid dividends of $60,000 during Year 9.
  • On December 31, Year 9, Kern's and Wand's common stock were trading over the counter at $18 and $20 per share, respectively.

Complete Acme's summary of investment securities using the information above. Enter the appropriate amounts in the designated cells below. Enter all amounts as positive values. If no answer is necessary, enter a zero (0).

Balance sheet

Investment in Kern

Investment in Wand

1. Investment in investee

Statement of income

Investment in Kern

Investment in Wand

2. Equity in earnings of investee
3. Dividend income
4. Unrealized holding gain

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

Step: 3

blur-text-image

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

Foreign Corrupt Practices Act Compliance Guidebook Protecting Your Organization From Bribery And Corruption

Authors: Martin T. Biegelman, Daniel R. Biegelman

1st Edition

0470527935, 978-0470527931

More Books

Students also viewed these Accounting questions