Chapter 12, Problem 12.13E

1)

To determine

Equity investments: The financial instruments which claim ownership in the issuing company and pay a dividend revenue to the investor company, are referred to as equity securities. The investments in equity securities are referred to as equity investments.

Fair value through net income method: This is the accounting method used for accounting stock or equity investments which claim less than 20% of the outstanding stock of the investee company.

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

• Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
• Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To Explain: The effect on Company H’s pretax earnings, if the shares of Company C are bought through the sale of shares of Company A.

2)

To determine

To Explain: The amount of securities equities investment portfolio reported by Company H in is 2017 balance sheet.