Chapter E, Problem E.44BP

LO 2, 3

(Learning Objectives 2, 3: Analyze and report various long-term investment transactions on the balance sheet and income statement) Illinois Exchange Company completed the following long-term investment transactions during 2018:

At year-end, the fair value of the Amsterdam stock is $30,900. The fair value of the Exeter stock is $652,000.

2018
May 12	Purchased 21,000 shares, which make up 45% of the common stock of Exeter Corporation at total cost of $340,000.
Jul 9	Received annual cash dividend of $1.21 per share on Exeter investment.
Sep 16	Purchased 1,100 shares of Amsterdam, Inc., common stock (less than 5% of its outstanding stock) paying $42.25 per share.
Oct 30	Received cash dividend of $0.34 per share on the Amsterdam investment.
Dec 31	Received annual report from Exeter Corporation, Net income for the year was $580,000.

Requirements

1. 1. For which investment is fair value used in the accounting? Why is fair value used for one investment and not the other?
2. 2. Show what Illinois Exchange would report on its year-end balance sheet and income statement for these investment transactions. It is helpful to use a T-account for the Equity-method Investment account. Ignore income tax.