Q13E_2 - Horngren'S Financial And Managerial Accounting

Question

Accounting for equity investments

Captain Investments completed the following investment transactions during 2018:

Jan. 14 Purchased 200 shares of Velcon stock, paying \(53 per share. The investment represents 4% ownership in Velcon’s voting stock. Captain does not have significant influence over Velcon. Captain intends to hold the investment for the indefinite future. 

Aug. 22 Received a cash dividend of \)0.28 per share on the Velcon stock. 

Dec. 31 Adjusted the Velcon investment to its current market value of $58. 

Requirements 

What account(s) and amount(s), if any, would be reported on Captain’s income statement for the year ended December 31, 2018?

Step-by-Step Solution

Answer

The income statement will include dividend revenue and unrealized holding gains.

Definition of Income Statement

The income statement of the business entity is a schedule reflecting the income earned by the business entity from its operation and other activities. It reports the incomes and sacrifices of the business entity.

Accounts and Amount to be Reported on Income Statement

Particular	Amount $
Dividend revenue	$56
Unrealized holding gains	1,000
Net income	$1,056