Need help with PART 2 Below Instructions On January 1, 2021, your company purchased 8,000 shares of Another Company's $10 par common stockfor $47 per share in cash. On that date, Another Company's assets and liabilities had a book value equal tomarket value except for their merchandise inventory which had a market value which was $5,000 higherthan its book value and Another Company is using the FIFO method of inventory.2021a.Purchased 8,000 shares of Another Company's $10 par common stock for $47 per share in cash.b. Received $4,000 in cash dividends.c. On December 31, 2021:1. Another Company's stock had a market value of $48 per share.2. Another Company reported net income of $100,000.2022d. Sold 1/5 of your shares for $50 per share in cashOn December 31, 2022:е.1. Another Company's stock had a market value of $52pershare (and nowyouwishyou had notsold those shares earlier in the year).2. Another Company reported net income of $170,000.INSTRUCTIONS:1.Assume the 8,000 shares you purchased represented a very small percentage of the outstandingshares of Another Company so you were using the COST method. Your co1ny originallyplanned to hold on to the shares for several years. Prepare all entries for 2021 and 2022 for theabove information.From your entries in part A, show the accounts and the amounts which would be reported on thefinancial statements for 2021 and also for 2022а.in the Investment and Funds category of the balance sheet on December 31, 2021 and onDecember 31, 2022b.in the Other Revenue section of the income statement for 2021 and for 20222.

Answered: INSTRUCTIONS: 1. Assume the 8,000…

FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Need help with PART 2 Below Instructions

On January 1, 2021, your company purchased 8,000 shares of Another Company's $10 par common stock
for $47 per share in cash. On that date, Another Company's assets and liabilities had a book value equal to
market value except for their merchandise inventory which had a market value which was $5,000 higher
than its book value and Another Company is using the FIFO method of inventory.
2021
a.
Purchased 8,000 shares of Another Company's $10 par common stock for $47 per share in cash.
b. Received $4,000 in cash dividends.
c. On December 31, 2021:
1. Another Company's stock had a market value of $48 per share.
2. Another Company reported net income of $100,000.
2022
d. Sold 1/5 of your shares for $50 per share in cash
On December 31, 2022:
е.
1. Another Company's stock had a market value of $52
per
share (and now
you
wish
you had not
sold those shares earlier in the year).
2. Another Company reported net income of $170,000.
INSTRUCTIONS:
1.
Assume the 8,000 shares you purchased represented a very small percentage of the outstanding
shares of Another Company so you were using the COST method. Your co1
ny originally
planned to hold on to the shares for several years. Prepare all entries for 2021 and 2022 for the
above information.
From your entries in part A, show the accounts and the amounts which would be reported on the
financial statements for 2021 and also for 2022
а.
in the Investment and Funds category of the balance sheet on December 31, 2021 and on
December 31, 2022
b.
in the Other Revenue section of the income statement for 2021 and for 2022
2.

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Step 1

As per the instructions given in the question, 8000 shares purchased represent a very small percentage of outstanding equity of Another Company, so the cost method should be utilized. As such there are two ways of accounting for investments

Cost Method - This method is utilized when the investment made doesn't give a significant amount of control or influence in the company
Equity method - When the investment made is more larger and influential

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