Presented below is information related to the purchases of common stock by Saras
ID: 2565894 • Letter: P
Question
Presented below is information related to the purchases of common stock by Sarasota Company during 2017.
Cost
(at purchase date)
Fair Value
(at December 31)
In addition, assume that the investment in the Woods Inc. stock was sold during 2018 for $194,000. At December 31, 2018, the following information relates to its two remaining investments of common stock.
Cost
(at purchase date)
Fair Value
(at December 31)
Net income before any security gains and losses for 2018 was $994,000.
(a) Compute the amount of net income or net loss that Sarasota should report for 2018, taking into consideration Sarasota’s security transactions for 2018, assuming Sarasota did not select the fair value option for investments in the Lee and Woods corporations.
(b) Prepare the journal entry to record unrealized gain or loss related to the investment in Arroyo Company stock at December 31, 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Cost
(at purchase date)
Fair Value
(at December 31)
Explanation / Answer
Solution:
a) Calculation of the Amount of Net Income or Net Loss that Sarasota Should Report for 2018:
Therefore, the Net Income that Sarasota Should be Reported in 2018 is $1,072,000.
b) Preparing the Journal Entry to Record the Unrealized Gain or Loss Related to the Investment in Arroyo Comapny Stock at December 31, 2018:
Equity Investments (Arroyo Stock)
($151,000 - $89,000)
Net income before security gains or losses $994,000 Sale of Investment in Woods Inc. stock ($194,000 - $178,000) $16,000 Investment in Arroyo Company stock ($151,000 - $89,000) $62,000 Net income $1,072,000Related Questions
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