Question

Dewey Corporation owns 30 percent of the common stock of Jimm Company, which it purchased at underlying book value on January 1, 20X5. Dewey reported a balance of $245,000 for its investment in Jimm Company on January 1, 20X5, and $276,800 at December 31, 20X5. During 20X5, Dewey and Jimm Company reported operating income of $340,000 and $70,000, respectively. Jimm received dividends from investments in marketable equity securities in the amount of $7,000 during 20X5. It also reported an increase of $18,000 in the market value of its portfolio of trading securities and an increase in the value of its portfolio of securities classified as available-for-sale. Jimm paid dividends of $20,000 in 20X5. Ignore income taxes in determining your solution.

Required
a. Assuming that Dewey uses the equity method in accounting for its investment in Jimm, compute the amount of income from Jimm recorded by Dewey in 20X5.
b. Compute the amount reported by Jimm as other comprehensive income in 20X5.
c. If all of Jimm’s other comprehensive income arose solely from its investment in available-forsale securities purchased on March 10, 20X5, for $130,000, what was the market value of those securities at December 31, 20X5?



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  • CreatedMay 23, 2014
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