On January 2, 2021, Hamilton purchased 500,000 shares of common stock of Lafayette Enterprises for $33.00 per share. At the date of purchase, the fair value and book value of the net assets of Lafayette were equal. During 2021, Lafayette reported net income of $3.9 million and paid cash dividends of $1.05 per share. On December 31, 2021, the market value of Lafayettes common stock was $35.60 per share.

Instructions

• Assuming the purchase represents 10% of the outstanding shares of Lafayette,
  • What amount will Hamilton report as equity investment (net of fair value adjustment, if applicable) on the December 31, 2021 balance sheet?
  • How much income (including dividend revenues, investment income, and unrealized gains and losses, if applicable) will be recognized for the year ending December 31, 2021 (ignoring taxes)?
• Assuming the purchase represents 40% of the outstanding shares of Lafayette,
  • What amount will Hamilton report as equity investment (net of fair value adjustment, if applicable) on the December 31, 2021 balance sheet?
  • How much income (including dividend revenues, investment income, and unrealized gains and losses, if applicable) will be recognized for the year ending December 31, 2021 (ignoring taxes)?