Q.10-23PGB_2
Question
- Question: P10-23B Accounting for equity investments
The beginning balance sheet of Text Source Co. included a \(700,000 investment in Taylor stock (20% ownership).
During the year, Text Source completed the following investment transactions:
Mar. 3 Purchased 5,000 shares at \)13 per share of Josh Software common stock as a long-term equity investment, representing 3% ownership, no significant influence.
May 15 Received a cash dividend of \(0.69 per share on the Josh investment.
Dec. 15 Received a cash dividend of \)100,000 from Taylor investment.
31 Received Taylor’s annual report showing \(100,000 of net income.
31 Received Josh’s annual report showing \)620,000 of net income for the year.
31 Taylor’s stock fair value at year-end was \(620,000.
31 Josh’s common stock fair value at year-end was \)14 per share.
Requirements
Post transactions to T-accounts to determine the December 31, 2018, balances related to the investment and investment income accounts.
Step-by-Step Solution
VerifiedAnswer
Accounts | Balances |
Equity investment – Taylor | $700,000 |
Equity investment – Josh | $65,000 |
Dividend revenue | $3,450 |
Revenue from investment | $20,000 |
A metric used by the analyst to evaluate the performance of any investment is known as return on investment. It is a determinant of the profitability of the investment.
| Equity investment – Taylor | |||||
Date | Particulars | Amt $ | Date | Particulars | Amt $ |
| Beginning balance | $700,000 | 15 Dec | Cash | $20,000 |
31 Dec | Revenue from investment | $20,000 | 31 Dec | Balance c/d | $700,000 |
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| $720,000 |
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| $720,000 |
| Equity investment – Josh | |||||
Date | Particulars | Amt $ | Date | Particulars | Amt $ |
3 March | Cash | $65,000 | 31 Dec | Balance c/d | $65,000 |
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| $65,000 |
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| $65,000 |
| Dividend revenue | |||||
Date | Particulars | Amt $ | Date | Particulars | Amt $ |
31 Dec | Balance c/d | $3,450 | 15 May | Cash | $3,450 |
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| $3,450 |
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| $3,450 |
| Revenue from investment - Taylor | |||||
Date | Particulars | Amt $ | Date | Particulars | Amt $ |
31 Dec | Balance c/d | $20,000 | 31 Dec | Equity investment | $20,000 |
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| $20,000 |
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| $20,000 |