Felicia Company acquired some of the 55,000 shares of outstanding common stock (
ID: 2347516 • Letter: F
Question
Felicia Company acquired some of the 55,000 shares of outstanding common stock (no par) of Nueces Corporation during 2010 as a long-term investment. The annual accounting period for both companies ends December 31. The following transactions occurred during 2010:
Prepare the journal entries for each of these transactions.
Requirement 3:
Show how the long-term investment and the related revenue should be reported in the 2010 financial statements of the company. (Round your answers to the nearest dollar amount.)
Felicia Company acquired some of the 55,000 shares of outstanding common stock (no par) of Nueces Corporation during 2010 as a long-term investment. The annual accounting period for both companies ends December 31. The following transactions occurred during 2010:
Explanation / Answer
1.Accounting method for reporting: In instances of "significant influence" the investor must account for the investment using the equity method. In general an investment of 20% or more can be called as the investment of significant influence. Here, Felcia company acquired 17,600 shares of 55,000 shares which is equal to 32% of total shares. So here the Felcia company has to use the Equity method of accountig. 2. Journal entries: Journal entries for the each of the transactions are as follows; Date Particulars L/F Dr $ Cr $ 10-Jan Investment in Nueces corporation 230,560 Stock 230,560 31-Dec Investment in Nueces corporation 29,120 Revenue from investment 29,120 (32% of Nueces corp income) 31-Dec Cash 11,616 Investment in Nueces stock 11,616 31-Dec No entry 3. Financial statement reporting: Felicia company's 2010 Balance sheet and income statements are as followws; Balance sheet $ Investments: Available for sale securities, at fair value 230,560 Stock holders equity: Accumulated comprehensive loss 36,960 Income statement Other revenues and gains: Dividend revenue 11,616 Realised gainns on investment in stock 29,120 Date Particulars L/F Dr $ Cr $ 10-Jan Investment in Nueces corporation 230,560 Stock 230,560 31-Dec Investment in Nueces corporation 29,120 Revenue from investment 29,120 (32% of Nueces corp income) 31-Dec Cash 11,616 Investment in Nueces stock 11,616 31-Dec No entryRelated Questions
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