At December 31, 2007, Metro Medical Company owned smallinvestments in the common
ID: 2446064 • Letter: A
Question
At December 31, 2007, Metro Medical Company owned smallinvestments in the common stock of other firms as follows:
Company Numbersof Purchase Price
SharesOwned perShare
1. HarborCompany 2,000 $ 18.75
2. Regency,Inc. 2,200 10.40
3. HiltonProducts 1,400 26.00
4. PaxtonTechnology 750 45.00
Metros management expects to sell its investments in Harbor andPaxton during the 2008 fiscal year. It does not, however, expect tosell its investments in Regency or Hilton at any time in thefore-seeable future. The market value of each investment at the endof the 2007 fiscal year was as follows:
Harbor $ 41,000
Regency 25,000
Hilton 34,200
Paxton 32,540
During 2007, Metro received $ 3,900 of dividends fromHarbor and $ 1,700 of dividends from Hilton. Metro Company owned noother stock investments during 2007.
A. Determine the amounts that should bereported on the December 31, 2007 balance sheet under the followingclassifications. Show how you determined each amount.
1. Short- term investments
2. Long- term investments
3. Stockholders equity
B. What information about theseinvestments should appear on 2007 s income statement? Bespecific.
C. How is it helpful to readers ofthe financial statements to see information about the market valueof common stock investments when Metro didn’t pay thoseamounts to obtain the shares? Explain.
Explanation / Answer
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