Chapter 10, Problem 10.22BP

Accounting for stock investments

The beginning balance sheet of Water Source Co. included a $800,000 investment in Larsen stock (35% ownership).

During the year, Water Source completed the following investment transactions:

Mar. 3	Purchased 6,000 shares at $7 per share of Jack Software common stock as a long-term, available-for-sale investment, representing 3% ownership.
May 15	Received a cash dividend of $0.53 per share on the Jack investment.
Dec. 15	Received a cash dividend of $1 10,000 from Larsen investment.
31	Received Larsen's annual report showing $110,000 of net income.
31	Received Jack's annual report showing $600,000 of net income for the year.
31	Larsen's stock fair value at year-end was $728,500.
31	Jack's common stock fair value at year-end was $10 per share.

Requirements

1. Journalize the transactions for the year of Water Source.

2. Post transactions to T-accounts to determine the December 31, 2016, balances related to the investment and investment income accounts.

3. Prepare Water Source's partial balance sheet at December 31, 2016, from your answers in Requirement 2.