In July 2014, Roddickton Ltd. (Roddickton) purchased 50,000 shares of Kola Inc. (Kola), a publicly traded company, for \($22\) per share. Roddickton received dividends of \($1.10\) per share from its investment in Kola. On December 31, 2014, the closing price for Kola’s shares was \($29\). There were 100,000,000 shares of Kola’s common stock outstanding during 2014.

Required:

a. Prepare the journal entry that would be made to record the purchase of the shares.

b. Prepare the journal entry to record the dividends received by Kola during 2014.

c. How would you classify this investment for financial reporting purposes? How would you decide? Does it matter how the investment is accounted for?

d. If the investment in Kola were classified as available for sale, what amount would be reported on Roddickton’s December 31, 2014 balance sheet? Explain. Would there be any impact on the income statement/statement of comprehensive income? Explain.

e. If the investment in Kola were classified as a trading investment, what amount would be reported on Roddickton’s December 31, 2014 balance sheet? Explain.

Would there be any impact on the income statement/statement of comprehensive income? Explain.

f. Do you think a management cares whether its investments are classified as available for sale or trading? Explain.