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Sky has an ownership stake in one of the companies that supplies sky with various components Sky uses in its products. Sky owns 5% of
Sky has an ownership stake in one of the companies that supplies sky with various components Sky uses in its products. Sky owns 5% of the common stock of the supplier, does not have any representation on the supplier's board of directors, does not exchange any personnel with the supplier, and does not consult with the supplier on any of the supplier's operating, financial, or strategic decisions. The cost basis of the investment in the supplier is $1,150,000 and the fair value of the investment at December 31, 2025, is $1,670,000. Sky does not intend to sell the investment in the foreseeable future. The supplier reported net income of $85,000 for 2025 and paid no dividends. Instructions Determine how each of the investments described above should be classified and accounted for. b. Prepare any December 31, 2025, journal entries needed for Sky relating to Sky's various investments in other companies. Assume 2025 is Sky's first year of operations. a
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