Answered: Prepare journal entries to record the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

The following activities relate to Merrill Company during the years 2018 and 2019:

2018:

Feb. 15 Merrill purchased 10,000 shares of Hendershot Equipment stock for $40 per share.

Dec. 1 Merrill received an $0.80-per-share cash dividend from Hendershot Equipment.

Dec. 31 Hendershot Equipment common stock had a closing market price of $97 per share. Hendershot’s 2018 net income was $120,000.

2019:

July 1 Merrill sold all 10,000 shares of Hendershot Equipment stock for $42 per share.

Additional information: Hendershot Equipment had 50,000 shares of common stock outstanding on January 1, 2018.

Required:

Prepare journal entries to record the transactions assuming: a.) The securities are classified as FVTOCI financial assets-equity. b.)The equity method is used.
Show the amounts that would be reported on the financial statements of Merrill Company at December 31, 2018, under each assumption.
Can Merrill use the equity method to account for its investment in Hendershot Equipment?

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