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ACC557 Week 8 E12-7 E12-8 E12-12 P12-2A

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ACC557 Week 8 E12-7 E12-8 E12-12 P12-2A

E12-7 On January 1, Vince Corporation purchased a 25% equity in Morelli Corporation
for $180,000. At December 31, Morelli declared and paid a $60,000 cash dividend and
reported net income of $200,000.

(a) Journalize the transactions.
(b) Determine the amount to be reported as an investment in Morelli stock at December 31.

E12-8 Presented below are two independent situations.

1. Chicory Cosmetics acquired 15% of the 200,000 shares of common stock of Racine
Fashion at a total cost of $13 per share on March 18, 2014. On June 30, Racine declared
and paid a $60,000 dividend. On December 31, Racine reported net income of $122,000
for the year. At December 31, the market price of Racine Fashion was $15 per share.
The stock is classifi ed as non-trading.
2. Frank, Inc., obtained signifi cant infl uence over Nowak Corporation by buying 30% of
Nowak’s 30,000 outstanding shares of common stock at a total cost of $9 per share on
January 1, 2014. On June 15, Nowak declared and paid a cash dividend of $30,000. On
December 31, Nowak reported a net income of $80,000 for the year.
Prepare all the necessary journal entries for 2014 for (a) Chicory Cosmetics and (b) Frank, Inc.

E12-12 Zippydah Company has the following data at December 31, 2014.

The non-trading securities are held as a long-term investment.
(a) Prepare the adjusting entries to report each class of securities at fair value.
(b) Indicate the statement presentation of each class of securities and the related unrealized
gain (loss) accounts.

P12-2A In January 2014, the management of Stefan Company concludes that it has suffi
cient cash to permit some short-term investments in debt and stock securities. During
the year, the following transactions occurred

At December 31, the fair value of the Superior common stock was $55 per share. The fair
value of the Pawlik common stock was $24 per share.

(a) Journalize the transactions and post to the accounts Debt Investments and Stock
Investments. (Use the T-account form.)
(b) Prepare the adjusting entry at December 31, 2014, to report the investment securities
at fair value. All securities are considered to be trading securities
(c) Show the balance sheet presentation of investment securities at December 31, 2014.
(d) Identify the income statement accounts and give the statement classifi cation of each

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