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Reporting Passive Investments - During January 2011, Pareto Glass Company purchased the following securities as its long-term securities available for sale investment portfolio:
D Corporation Common Stock: 11,000 shares (95,000 outstanding) at $9 per share
F Corporation Bonds: $300,000 (20-year, 8 percent) purchased at par (not to be held to maturity). Subsequent to acquisition, the following data were available:
|
2011 |
2012 |
|
|
Net income reported at December 31: |
||
|
D Corporation |
$31,000 |
$41,000 |
|
F Corporation |
$360,000 |
$550,000 |
|
Dividends and interest paid during the year: |
||
|
D Corporation common stock dividends (per share) |
$0.70 |
$0.80 |
|
F Corporation bonds interest |
$24,000 |
$24,000 |
|
Fair value at December 31: |
||
|
D Corporation common stock (per share) |
$8.00 |
$9.50 |
|
F Corporation bonds |
$280,000 |
$290,000 |
Required:
1. What accounting method should be used for the investment in D common stock? F bonds? Why?
2. Give the journal entries for the company for each year in parallel columns (if none, explain why) for each of the following:
a. Purchase of the investments.
b. Income reported by D and F Corporations.
c. Dividends and interest received from D and F Corporations.
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 losses/gains.
c. Revenues.
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