Question

In July 2017, Roddickton Ltd. (Roddickton) purchased 50,000 shares of Kola Inc. (Kola), a publicly traded company, for $22 per share. Roddickton re ceived dividends of $1.10 per share from its investment in Kola. On December 31, 2017, the closing price for Kola's shares was $29. There were 100,000,000 shares of Kola's common stock outstanding during 2017.

Required:
a. Prepare the journal entry that would be made to record the purchase of the shares.
b. Prepare the journal entry to record the dividends received by Kola during 2017.
c. How would you classify this investment for financial reporting purposes? How would you decide? Does it matter how the investment is accounted for?
d. If the investment in Kola were classified as fair value through other comprehensive income, what amount would be reported on Roddickton's December 31, 2017 balance sheet? Explain. Would there be any impact on the income statement/statement of comprehensive income? Explain.
e. If the investment in Kola were classified as fair value through profit and loss, what amount would be reported on Roddickton's December 31, 2017 balance sheet? Explain. Would there be any impact on the income statement/statement of compre hensive income? Explain.
f. Do you think a management cares whether its investments are classified as fair value through other comprehensive income or fair value through profit and loss? Explain.



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  • CreatedFebruary 26, 2015
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