Chapter 15, Problem E15.16E

To determine

Equity investment is categorized in three categories:

a. Holding less than 20%:

Investors usually buys equity securities with less than 20% ownership for trading purpose and keeps the securities for very short period of time. The cost method is used for accounting for this type of investment.

b. Holding more than 20% less but less than 50%:

The investor will be a minority interest under holding between 20% to 50%. The earnings of the holding company will be shared according to the interest of ownership over the company. Equity method of accounting will be used in such type of investment.

c. Holding more than 50%:

The investors who are interested taking active part in the operations of the business buys more than 50% of ownership of a company. In such cases, consolidated financial statement is prepared at end of each accounting period.

To determine:

1. Journalize Boston Today’s investment transactions.

2. How would the loveable stock be classified and at what value would it be reported on the balance sheet?