Q14E_2 - Horngren'S Financial And Managerial Accounting

Question

Accounting for equity investments

Money Man Investments completed the following transactions during 2018:

Jan. 14 Purchased 400 shares of Technomite stock, paying \(56 per share. The investment represents 25% ownership in Technomite’s voting stock and Money Man has significant influence over Technomite. Money Man intends to hold the investment for the indefinite future. 

Aug. 22 Received a cash dividend of \)0.27 per share on the Technomite stock.

Dec. 31 Technomite’s current market value is \(51 per share. 

        31 Technomite reported net income of \)180,000 for the year ended 2018.

Requirements 

Classify and prepare partial financial statements for Money Man’s 25% Technomite investment for the year ended December 31, 2018.

Step-by-Step Solution

Answer

The investment will be reported as a long-term investment in the company’s balance sheet.

Definition of Financial Statements

All statements concerned with reporting a summary of all the financial transactions are known as financial statements. It reports an overview of all the transactions occurring during the year.

Partial Financial Statement

Balance sheet:

Particular	Amount
Assets
Long-Term Investment
Investment in Technomite stock	$65,292
Equity
Other comprehensive Gains/Losses	($2,000)

 

Income Statement:

Particular	Amount $
Revenue from investment	$45,000

 

Working Note:

Particular	Amount
Initial investment	$22,400
Less: Dividend payment	(108)
Less: Unrealized holding losses	(2,000)
Add: Increase in investment due to net income	45,000
Fair value of Investment	$65,292