FINANCIAL ACCOUNTING 9TH
16th Edition
ISBN: 9781308821672
Author: Libby
Publisher: MCG/CREATE
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Textbook Question
Chapter A, Problem 3AP
Reporting Passive Investments
During January 2017, Pentagon Company purchased 12,000 shares of the 200,000 outstanding common shares (no-par value) of Square Corporation at $25 per share. This block of stock was purchased as a long-term investment. Assume that the accounting period for each company ends December 31. Subsequent to acquisition, the following data were available:
| 2017 | 2018 | |
| Income reported by Square Corporation at December 31 | $40,000 | $60,000 |
| Cash dividends declared and paid by Square Corporation | ||
| during the year | $60,000 | $80,000 |
| Market price per share of Square common stock on | ||
| December 31 | $28 | $27 |
Required:
- 1. What accounting method should Pentagon Company use? Why?
- 2. Give the
journal entries for the company for each year (use parallel columns) for the following (if none, explain why):- a. Acquisition of Square Corporation stock.
- b. Net income reported by Square Corporation.
- c. Dividends received from Square Corporation.
- d. Fair value effects at year-end.
- 3. For each year, show how the following amounts should be reported on the financial statements:
- a. Long-term investments.
- b. Stockholders’ equity—net unrealized loss/gain.
- c. Revenues.
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Chapter A Solutions
FINANCIAL ACCOUNTING 9TH
Ch. A - Prob. 1QCh. A - Explain the difference in accounting methods used...Ch. A - Explain how bonds held to maturity are reported on...Ch. A - Explain the application of the cost principle to...Ch. A - Under the fair value method, when and how does the...Ch. A - Under the equity method, why does the investor...Ch. A - Prob. 7QCh. A - Prob. 8QCh. A - Prob. 9QCh. A - Company X owns 40 percent of Company Y and...
Ch. A - Prob. 2MCQCh. A - Dividends received from stock that is reported as...Ch. A - Prob. 4MCQCh. A - Prob. 5MCQCh. A - When using the equity method of accounting, when...Ch. A - Prob. 7MCQCh. A - Prob. 8MCQCh. A - Which of the following is true regarding the...Ch. A - Prob. 10MCQCh. A - Matching Measurement and Reporting Methods Match...Ch. A - Prob. 2MECh. A - Prob. 3MECh. A - Prob. 4MECh. A - Prob. 5MECh. A - Prob. 6MECh. A - Prob. 7MECh. A - Prob. 8MECh. A - Prob. 9MECh. A - Prob. 10MECh. A - Prob. 11MECh. A - Prob. 1ECh. A - Prob. 2ECh. A - Recording Transactions in the Available-for-Sale...Ch. A - Prob. 4ECh. A - Prob. 5ECh. A - Reporting Gains and Losses in the Trading...Ch. A - Prob. 7ECh. A - Prob. 8ECh. A - Prob. 9ECh. A - Prob. 10ECh. A - Prob. 11ECh. A - Prob. 1PCh. A - Prob. 2PCh. A - Prob. 3PCh. A - Prob. 4PCh. A - Prob. 5PCh. A - Comparing Methods to Account for Various Levels of...Ch. A - Prob. 7PCh. A - Recording Investments for Significant Influence LO...Ch. A - Prob. 9PCh. A - Prob. 10PCh. A - Prob. 11PCh. A - Prob. 1APCh. A - Prob. 2APCh. A - Reporting Passive Investments During January 2017,...Ch. A - Prob. 4APCh. A - Prob. 5APCh. A - Prob. 6APCh. A - Prob. 1CONCh. A - Finding Financial Information Refer to the...Ch. A - Prob. 2CPCh. A - Prob. 3CPCh. A - Prob. 4CPCh. A - Prob. 5CPCh. A - Prob. 6CP
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