Q. 4SE_3 - Horngren'S Financial And Managerial Accounting

Question

Question: S10-4 Accounting for equity investments 

On January 1, 2018, Bryant, Inc. decides to invest in 3,750 shares of Farrier stock when the stock is selling for \(16 per share. On August 1, 2018, Farrier paid a \)0.70 per share cash dividend to stockholders. On December 31, 2018, Farrier reports net income of $50,000 for 2018. Assume Farrier has 15,000 shares of voting stock outstanding during 2018 and Bryant has significant influence over Farrier.

Requirements 

3. In what category and value would Bryant report the investment on the December 31, 2018, balance sheet?

Step-by-Step Solution

Answer

The investment value on 31 December 2018 will be $69,875.

Step 1: Definition of Stockholders

The individuals possessing the shares of the business entity are known as stockholders. Such stockholders might be preferred stockholders or common stockholders. 

Step 2: Reporting Investment on the Balance Sheet

Particular	Amount $
Invested amount	$60,000
Add: Net income share	12,500
Less: Dividend paid	(2,625)
Investment Value	$69,875

It must be reported on the asset side as an investment in Farrier company.