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On February 8 th , 2020, Harris Pilton purchased 3,000 shares of Pizza Gnomes Inc. for $30 per share. Pizza Gnomes has 100,000 shares outstanding.
On February 8th, 2020, Harris Pilton purchased 3,000 shares of Pizza Gnomes Inc. for $30 per share. Pizza Gnomes has 100,000 shares outstanding. On December 1, Pizza Gnomes declared and paid an $0.30 cash dividend per share. The market price of Pizza Gnomes stock is $25 per share on December 31, and the unrealized holding gain/loss account for Harris Piltons accounting purposes has a beginning debit balance of $600.
Instructions
- Compute the carrying value of the investment at December 31, 2020.
- Briefly explain how this investment should be accounted for and how this would differ if Harris Pilton had instead purchased 30,000 shares.
- Compute the fair value adjustment of this investment assuming the market price at December 31 was instead $35.
Computations:
Carrying value at December 31:
Requirement 2:
Fair value adjustment assuming a market price of $35:
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