On July 1, 2021, Clearwater Inc. purchased 7.200 shares of the outstanding common stock of Mountain Corporation at a cost of $192,000. Mountain had 24,000 shares of outstanding common stock. The total book value and total fair value of Mountain's individual net assets on July 1, 2021, are both $640,000. The total fair value of the 24,000 shares of Mountain's common stock on December 31, 2021, is $730,000. Both companies have a January through December fiscal year. The following data pertains to Mountain Corporation during 2021 Dividends declared and paid, January 1-June 30 Dividends declared and paid, July 1-December 311 Net income, January 1-June 30 Net income, July 1-December 31 Required: $11,400 $11,400 $13,400 $17,400 1. Prepare the necessary entries for 2021 under the equity method (other than for the purchase). 2. Prepare any necessary entries for 2021 (other than for the purchase) that would be required if the securities were accounted for under the fair value through net income method.
On July 1, 2021, Clearwater Inc. purchased 7.200 shares of the outstanding common stock of Mountain Corporation at a cost of $192,000. Mountain had 24,000 shares of outstanding common stock. The total book value and total fair value of Mountain's individual net assets on July 1, 2021, are both $640,000. The total fair value of the 24,000 shares of Mountain's common stock on December 31, 2021, is $730,000. Both companies have a January through December fiscal year. The following data pertains to Mountain Corporation during 2021 Dividends declared and paid, January 1-June 30 Dividends declared and paid, July 1-December 311 Net income, January 1-June 30 Net income, July 1-December 31 Required: $11,400 $11,400 $13,400 $17,400 1. Prepare the necessary entries for 2021 under the equity method (other than for the purchase). 2. Prepare any necessary entries for 2021 (other than for the purchase) that would be required if the securities were accounted for under the fair value through net income method.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter13: Investments And Long-term Receivables
Section: Chapter Questions
Problem 8MC
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![On July 1, 2021, Clearwater Inc. purchased 7,200 shares of the outstanding common stock of Mountain Corporation at a cost of
$192,000. Mountain had 24,000 shares of outstanding common stock. The total book value and total fair value of Mountain's Individual
net assets on July 1, 2021, are both $640,000. The total fair value of the 24,000 shares of Mountain's common stock on December 31,
2021, is $730,000. Both companies have a January through December fiscal year. The following data pertains to Mountain Corporation
during 2021:
Dividends declared and paid, January 1-June 30
Dividends declared and paid, July 1-December 31
$11,400
$11,400
$13,400
$17,400
Net income, January 1-June 30
Net income, July 1-December 311
Required:
1. Prepare the necessary entries for 2021 under the equity method (other than for the purchase).
2. Prepare any necessary entries for 2021 (other than for the purchase) that would be required if the securities were accounted for
under the fair value through net income method.
Complete this question by entering your answers in the tabs below.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbf651664-dd19-44da-96eb-5e01fe87f6f8%2Fa3e3e61b-effe-4b3d-af3d-6d2e3fa81630%2F853v1i9_processed.jpeg&w=3840&q=75)
Transcribed Image Text:On July 1, 2021, Clearwater Inc. purchased 7,200 shares of the outstanding common stock of Mountain Corporation at a cost of
$192,000. Mountain had 24,000 shares of outstanding common stock. The total book value and total fair value of Mountain's Individual
net assets on July 1, 2021, are both $640,000. The total fair value of the 24,000 shares of Mountain's common stock on December 31,
2021, is $730,000. Both companies have a January through December fiscal year. The following data pertains to Mountain Corporation
during 2021:
Dividends declared and paid, January 1-June 30
Dividends declared and paid, July 1-December 31
$11,400
$11,400
$13,400
$17,400
Net income, January 1-June 30
Net income, July 1-December 311
Required:
1. Prepare the necessary entries for 2021 under the equity method (other than for the purchase).
2. Prepare any necessary entries for 2021 (other than for the purchase) that would be required if the securities were accounted for
under the fair value through net income method.
Complete this question by entering your answers in the tabs below.
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Step 1: Introduction to journal entries:
VIEWStep 2: Working note- Determining the unrealized gain/(loss) at the end of the year:
VIEWStep 3: Requirement 1- Preparing the required journal entries (other than purchase) using equity method:
VIEWStep 4: Requirement 2- Preparing the required journal entries (other than purchase) using fair value method:
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