During January 2014, Hexagon Company purchased 12,000 of the 200,000 outstanding common shares of Smiley Corporation at $ 30 per share. This block of shares was purchased as a long- term investment. Assume that the fiscal year for each company ends on December 31. Subsequent to acquisition, the following data were available:
1. What accounting method should Hexagon Company use to record the investment in Smiley Corporation’s common shares? Why?
2. Prepare the journal entries to record the following events for each year using parallel columns (if no entries are required, explain why):
a. Acquisition of Smiley Corporation’s shares.
b. Net earnings reported by Smiley Corporation.
c. Dividends received from Smiley Corporation.
d. Fair value effects at year-end.
3. For each year, show how the following amounts should be reported on the financial statements of Hexagon Company:
a. Non-current investment.
b. Shareholders’ equity—net unrealized gains and losses.
c. Revenues.

  • CreatedAugust 04, 2015
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