Invest Up Hardware operates a chain of hardware stores. Recent operations have been stable and profitable, resulting in a significant amount of cash inflows. During the past fiscal year ended December 31, the company made a number of investments, as described below. Investment A : Invest Up bought 30,000 shares of Machine Mart, a supplier of equipment for construction and renovations. With in-depth knowledge of the hardware retailing business, Invest Up's management believes that Machine Mart's shares are undervalued and that the company could make a quick profit selling the shares within the next 12 months. Invest Up purchased the shares at $18 each, and received $0.30 per share dividends during the year. The shares traded at $29 at the fiscal year-end. Investment B: The company purchased 12,000 units of a mutual fund which cost $28 each. Management had no specific trading intentions for this investment; rather, it was a means of parking excess cash. At the end of the year, the units had a quoted market value of $24. Investment C: At the beginning of the year, Invest Up bought 25 % of the common shares in Builder Bee (Investment C), one of its smaller suppliers, for $6 million. These shares had a fair value of $6.6 million at the end of the year. During the year, Builder Bee reported net income of $1,500,000 and paid total dividends of $10,000 Investment C would be recorded as Ol Trading seities a) Trading securities b) Held for sale Oc) Held to maturity Od) Associate e) Joint Venture
Invest Up Hardware operates a chain of hardware stores. Recent operations have been stable and profitable, resulting in a significant amount of cash inflows. During the past fiscal year ended December 31, the company made a number of investments, as described below. Investment A : Invest Up bought 30,000 shares of Machine Mart, a supplier of equipment for construction and renovations. With in-depth knowledge of the hardware retailing business, Invest Up's management believes that Machine Mart's shares are undervalued and that the company could make a quick profit selling the shares within the next 12 months. Invest Up purchased the shares at $18 each, and received $0.30 per share dividends during the year. The shares traded at $29 at the fiscal year-end. Investment B: The company purchased 12,000 units of a mutual fund which cost $28 each. Management had no specific trading intentions for this investment; rather, it was a means of parking excess cash. At the end of the year, the units had a quoted market value of $24. Investment C: At the beginning of the year, Invest Up bought 25 % of the common shares in Builder Bee (Investment C), one of its smaller suppliers, for $6 million. These shares had a fair value of $6.6 million at the end of the year. During the year, Builder Bee reported net income of $1,500,000 and paid total dividends of $10,000 Investment C would be recorded as Ol Trading seities a) Trading securities b) Held for sale Oc) Held to maturity Od) Associate e) Joint Venture
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Invest Up Hardware operates a chain of hardware stores. Recent operations have
been stable and profitable, resulting in a significant amount of cash inflows. During
the past fiscal year ended December 31, the company made a number of
investments, as described below.
Investment A: Invest Up bought 30,000 shares of Machine Mart, a supplier of
equipment for construction and renovations. With in-depth knowledge of the
hardware retailing business, Invest Up's management believes that Machine Mart's
shares are undervalued and that the company could make a quick profit selling the
shares within the next 12 months. Invest Up purchased the shares at $18 each, and
received $0.30 per share dividends during the year. The shares traded at $29 at the
fiscal year-end.
Investment B: The company purchased 12,000 units of a mutual fund which cost
$28 each. Management had no specific trading intentions for this investment; rather,
it was a means of parking excess cash. At the end of the year, the units had a quoted
market value of $24.
Investment C: At the beginning of the year, Invest Up bought 25% of the common
shares in Builder Bee (Investment C), one of its smaller suppliers, for $6 million.
These shares had a fair value of $6.6 million at the end of the year. During the year,
Builder Bee reported net income of $1,500,000 and paid total dividends of $10,000
Investment C would be recorded as
Oa) Trading s
securities
a) Trading securities
b) Held for sale
O c) Held to maturity
d) Associate
e) Joint Venture
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