Brinkley Company, which began operations on January 3, 2015, had the following subsequent transactions and events in

Question:

Brinkley Company, which began operations on January 3, 2015, had the following subsequent transactions and events in its long-term investments.

2015

Jan. 5 Brinkley purchased 20,000 shares (25% of total) of Bloch’s common stock for $200,500.

Aug. 1 Bloch declared and paid a cash dividend of $1.05 per share.

Dec. 31 Bloch’s net income for 2015 is $82,000, and the fair value of its stock is $11.90 per share.

2016

Aug. 1 Bloch declared and paid a cash dividend of $1.35 per share.

Dec. 31 Bloch’s net income for 2016 is $78,000, and the fair value of its stock is $13.65 per share.

2017

Jan. 8 Brinkley sold all of its investment in Bloch for $375,000 cash.

Part 1

Assume that Brinkley has a significant influence over Bloch with its 25% share.


Required

1. Prepare journal entries to record these transactions and events for Brinkley.

2. Compute the carrying (book) value per share of Brinkley’s investment in Bloch common stock as reflected in the investment account on January 7, 2017.

3. Compute the net increase or decrease in Brinkley’s equity from January 5, 2015, through January 8, 2017, resulting from its investment in Bloch.

Part 2

Assume that although Brinkley owns 25% of Bloch’s outstanding stock, circumstances indicate that it does not have a significant influence over the investee and that it is classified as an available-for-sale security investment.

Required

1. Prepare journal entries to record these transactions and events for Brinkley. Also prepare an entry dated January 8, 2017, to remove any balance related to the fair value adjustment.

2. Compute the cost per share of Brinkley’s investment in Bloch common stock as reflected in the investment account on January 7, 2017.

3. Compute the net increase or decrease in Brinkley’s equity from January 5, 2015, through January 8, 2017, resulting from its investment in Bloch.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Fundamental Accounting Principles

ISBN: 978-0077862275

22nd edition

Authors: John Wild, Ken Shaw, Barbara Chiappetta

Question Posted: