Pun Company acquired 10% of the 200,000 shares of common stock of Sheena Company

Question

Pun Company acquired 10% of the 200,000 shares of common stock of Sheena Company at a total cost of $13 per share on March 18, 2016. On June 30, 2016 Sheena declared and paid a $75,000 dividend. On December 31, 2016 Sheena reported net income of $122,000 for the year. At December 31, 2016, the market price of Sheena Company was $14 per share. The stock is classified as available-for-sale.

1. On March 18, 2016, Pun Company should:

2. On June 30, 2016, Pun Company should:

3. On December 31, 2016, Pun Company should do what to account for the changes in the fair market value of the Sheena investment?

4. On December 31, 2016, Pun Company should do what to account for the net income reported by Sheena Company?

5. On December 31, 2016, the balance sheet of Pun Company would report the investment in Sheena at what amount?

Explanation / Answer

1 Sheena Company shares 200000 Pun Company acquired 10% 200000 x 10% 20000 No shares 20000 x 13 260000 Share Capital A/C Dr 260000       To Cash or bank account 260000 (Being acquired 10% shares of sheena company ) 2 Calculation of earning per share 200,000 shares 75,000 dividend Earing per share Difident / shares 0.375 Total Divident = No Of shares x Dividend per shares 20000 0.375 7500 3 As on Dec the Shnee company should increase it capit because it fair value of share as increased 4 Pun Company there is nothing to do till the divident is declared and increase the fair balue of shares 5 Pun Company would report the investment in Sheena at = 280000 20000 x 14 = 280000

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