Home / Questions / Comparing the Fair Value and Equity Methods Cardinal Company purchased, as a long-term in...
Comparing the Fair Value and Equity Methods - Cardinal Company purchased, as a long-term investment, some of the 200,000 shares of the outstanding common stock of Arbor Corporation. The annual accounting period for each company ends December 31. The following transactions occurred during 2012:
Jan. 10 Purchased shares of common stock of Arbor at $12 per share as follows:
Case A—30,000 shares
Case B—80,000 shares
Dec. 31 a. Received the 2012 financial statements of Arbor Corporation; the reported net income was $90,000.
b. Received a cash dividend of $0.60 per share from Arbor Corporation.
c. Determined that the current market price of Arbor stock was $9 per share.
Required:
1. For each case, identify the accounting method that the company should use. Explain why.
2. Give the journal entries for each case for these transactions. If no entry is required, explain why. (Hint: Use parallel columns for Case A and Case B.)
3. Give the amounts for each case that should be reported on the 2012 financial statements. Use the following format:
|
Case A |
Case B |
|
Balance sheet (partial) |
|
|
Investments |
|
|
Investments in common stock, Arbor Corporation |
|
|
Stockholders’ equity |
|
|
Net unrealized gain or loss |
|
|
Income statement (partial) |
|
|
Dividend revenue |
|
|
Equity in earnings of affiliate |
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