HomeworkLib
Question

On 1/1/2020, SF acquired 25% of the outstanding common stock of LA, by purchasing 5,000 shares...

On 1/1/2020, SF acquired 25% of the outstanding common stock of LA, by purchasing 5,000 shares of the outstanding common stock of LA at a cost of $100,000. SF paid cash for the investment in LA on 1/1/2020. LA had a total of 20,000 shares of outstanding common stock. The total fair value of the 20,000 shares of LA's common stock on 1/1/2020, was $400,000. The total fair value of the 20,000 shares of LA's common stock on 12/31/2020 is $600,000. Both companies’ fiscal years end on 12/31. The following data pertains to LA during 2020.

Per share dividend declared and paid between 1/1/2020 and 12/31/2020: $2.00

Net income for 2020: 200,000

What is the balance (or value) of investment in LA in SF’s balance sheet as of 12/31/2020? Also, prepare all journal entries for SF in relation to the transactions of its investment in LA during 2020.

business   accounting   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Answer :

The current invesment is valued at Fair value or Cost, whichever is lower.

Fari value at 31/12/2020 of 5000 shares = 600000/20000*5000 = 150000

Cost = 100000

Value to be shown in BS = 100000

Jounal Entries:

Date Debit credit 100000 100000 100000 Partculars 01-01-20 Investment in Shares A/C To Broker A/C (Being Shares purchsed from

Hope the above meet your objective

In case of any doubt reach us in comment section

0 0
Add a comment
Know the answer?
Add Answer to:
On 1/1/2020, SF acquired 25% of the outstanding common stock of LA, by purchasing 5,000 shares...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • On January 2, 2020, SF purchased 15% of LA's common stock for $50,000 and classified its...

    On January 2, 2020, SF purchased 15% of LA's common stock for $50,000 and classified its investment in LA as trading securities. LA's net income for the year ended 12/31/2020 was $100,000. During 2020, LA declared and paid a total dividend of $30,000. On 12/31/2020, the fair value of the LA stock owned by SF increased to $70,000. How much should SF show dividend income (or dividend revenue) from its investment in LA in its income statement for the year...

  • Problem 4 (20 pts) On January 1, 2020, Jordan Inc. purchased 25% of the outstanding common...

    Problem 4 (20 pts) On January 1, 2020, Jordan Inc. purchased 25% of the outstanding common stock of Melody Corporation at a cost of $450,000. Melody Corporation had 400,000 shares of common stock outstanding. At the date of purchase, the book value of Melody's net assets was $1,500,000. Book value and fair value of net assets were the same for all balance sheet items except for machinery and inventory. The fair value exceeded the book value by $100,000 for machinery...

  • On January 1, 2020, Case Corporation purchased 3,000 of the 10,000 outstanding shares of common stock...

    On January 1, 2020, Case Corporation purchased 3,000 of the 10,000 outstanding shares of common stock of Dow Corporation for $28,000 cash. At that date, Dow's balance sheet reflected the following book values. Assets not subject to depreciation . Assets subject to depreciation .. Liabilities. ........ Common stock (par $4) ........ Retained earnings, $10,000..... $25,000* 30,000** 5,000* 40,000 10,000 * Same as fair value. ** Fair value $38,000; the assets have a 10-year remaining useful life (straight-line depreciation). Dow Corporation...

  • On January 1, 2020, Jamestina Corp. paid $1,800,000 for 100,000 shares of Belinda Company's common stock,...

    On January 1, 2020, Jamestina Corp. paid $1,800,000 for 100,000 shares of Belinda Company's common stock, which represents 25% of Belinda's outstanding common stock. Belinda reported net income of $1,200,000 and paid cash dividends of $600,000 during 2020. Jamestina Corp should report the investment in Belinda Company on its December 31, 2020, balance sheet at: a. $1,800,000 b. $1,758,000 c. $1,818,000 d. $1,950,000

  • Problem 4 (20 pts) On January 1, 2020, Jordan Inc. purchased 30% of the outstanding common...

    Problem 4 (20 pts) On January 1, 2020, Jordan Inc. purchased 30% of the outstanding common stock of Melody Corporation at a cost of $600,000. Melody Corporation had 800,000 shares of common stock outstanding. At the date of purchase, the book value of Melody's net assets was $1,500,000. Book value and fair value of net assets were the same for all balance sheet items except for machinery and inventory. The fair value exceeded the book value by $200,000 for machinery...

  • On December 31, 2020, Lemmon Company issued 20,000 shares of its common stock with a fair...

    On December 31, 2020, Lemmon Company issued 20,000 shares of its common stock with a fair value of $50 per share for all of the outstanding common shares of May Company. Stock issuance costs of $4,000 and direct costs of $1,000 were paid. In addition, Lemmon promised to pay an additional $2,200 to the former owners if May's earnings exceeded a certain amount during the next year. The fair value of the potential obligation is estimated at $2,000.Compute the investment...

  • On July 1, 2021, Clearwater Inc. purchased 8,000 shares of the outstanding common stock of Mountain...

    On July 1, 2021, Clearwater Inc. purchased 8,000 shares of the outstanding common stock of Mountain Corporation at a cost of $160,000. Mountain had 40,000 shares of outstanding common stock. The total book value and total fair value of Mountain’s individual net assets on July 1, 2021, are both $800,000. The total fair value of the 40,000 shares of Mountain’s common stock on December 31, 2021, is $860,000. Both companies have a January through December fiscal year. The following data...

  • On January 1, 2020, Redmond Company purchased 3,000 of the 15,000 outstanding shares of common stock...

    On January 1, 2020, Redmond Company purchased 3,000 of the 15,000 outstanding shares of common stock of Decca Computer (DC) Corporation for $80,000 cash as a long-term investment (the only long-term equity invest- ment held). The assets and liabilities of DC Corporation at the date of purchase approximate fair value. During 2020, DC reported net income of $25,000 and declared and paid cash dividends of $10,000. The fair value of DC Corporation at December 31, 2020, was $25 per share....

  • On January 1, 20X7, P Company acquired 60 percent of the outstanding common stock of S...

    On January 1, 20X7, P Company acquired 60 percent of the outstanding common stock of S Company at the book value of the shares acquired. On that date, the fair value of noncontrolling interest was equal to 40 percent of book value of S. At the time of purchase, S had common stock of $1,000,000 outstanding and retained earnings of $800,000. On December 31, 20X7, P purchased 50 percent of S's bonds outstanding which were originally issued on January 1,...

  • On January 1, 20X7, P Company acquired 60 percent of the outstanding common stock of S...

    On January 1, 20X7, P Company acquired 60 percent of the outstanding common stock of S Company at the book value of the shares acquired. On that date, the fair value of noncontrolling interest was equal to 40 percent of book value of S. At the time of purchase, S had common stock of $1,000,000 outstanding and retained earnings of $800,000. On December 31, 20X7, P purchased 50 percent of S's bonds outstanding which were originally issued on January 1,...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT