9th Edition

ISBN: 9781260255775

Author: SPICELAND, Nel

Publisher: MCG

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Textbook Question

Chapter 12, Problem 12.16E

Equity investments; fair value through net income

• LO12-4

On January 2, 2018, Sanborn Tobacco Inc. bought 5% of Jackson Industry’s capital stock for $90 million. Jackson Industry’s net income for the year ended December 31, 2018, was $120 million. The fair value of the shares held by Sanborn was $98 million at December 31, 2018. During 2018, Jackson declared a dividend of $60 million.

Required:

1. Prepare all appropriate journal entries related to the investment during 2018.

2. Assume that Sanborn sold the stock on January 2, 2019 for $110 million. Prepare the journal entry Sanborn would use to record the sale.

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Chapter 12, Problem 12.15E

Chapter 12, Problem 12.17E

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Chapter 12 Solutions

SPICELAND GEN CMB LL INTRM ACCTG; CNCT

Ch. 12 - All investments in debt securities are classified...Ch. 12 - When market rates of interest rise after a...Ch. 12 - Does GAAP distinguish between fair values that are...Ch. 12 - When a debt investment is acquired to be held for...Ch. 12 - Prob. 12.5Q Ch. 12 - What is comprehensive income? Its composition...Ch. 12 - Why are holding gains and losses treated...Ch. 12 - Prob. 12.8Q Ch. 12 - Prob. 12.9Q Ch. 12 - Prob. 12.10Q

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Solution Summary: The author explains that equity investments claim ownership in the investee company and pay dividend revenue to the investor company. Journal entry is a set of economic events which can be measured in monetary terms.

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