Q12E_2. - Horngren'S Financial And Managerial Accounting

Question

Accounting for equity investments

Strategic Investments completed the following investment transactions during 2018:

Jan. 14 Purchased 800 shares of Phyflexon stock, paying \(50 per share. The investment represents 4% ownership in Phyflexon’s voting stock. Strategic does not have significant influence over Phyflexon. Strategic intends to hold the investment for the indefinite future. 

Aug. 22 Received a cash dividend of \)0.24 per share on the Phyflexon stock. 

Dec. 31 Adjusted the investment to its current market value of \(45 per share. 

        31 Phyflexon reported net income of \)330,000 for the year ended 2018.

Requirements 

2. Classify and prepare a partial balance sheet for Strategic’s Phyflexon investment as of December 31, 2018.

Step-by-Step Solution

Answer

Particular	Amount $
Asset
Equity investment	$36,000

Step 1: Definition of Balance Sheet

The balance sheet is a financial statement that contains details of a company’s assets or liabilities at a specific point in time. It shows how the business is being funded. In the balance sheet, the assets and liabilities should be equal.

Step 2: Partial Balance Sheet

The equity investment will be reported on the asset side of the balance sheet. Its classification as current and non-current asset depends upon the company’s management.