Dan Aykroyd Corp. was a 30% owner of Steve Martin Company, holding 210,000 shares of Martins common
Question:
Dan Aykroyd Corp. was a 30% owner of Steve Martin Company, holding 210,000 shares of Martin’s common stock on December 31, 2013. The investment account had the following entries.
On January 2, 2014, Aykroyd sold 126,000 shares of Martin for $3,440,000, thereby losing its significant influence. During the year 2014, Martin experienced the following results of operations and paid the following dividends to Aykroyd.
At December 31, 2014, the fair value of Martin shares held by Aykroyd is $1,570,000. This is the first reporting date since the January 2 sale.
Instructions
(a) What effect does the January 2, 2014, transaction have upon Aykroyd’s accounting treatment for its investment in Martin?
(b) Compute the carrying amount of the investment in Martin as of December 31, 2014 (prior to any fair value adjustment).
(c) Prepare the adjusting entry on December 31, 2014, applying the fair value method to Aykroyd’s long-term investment in Martin Companysecurities.
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...
Step by Step Answer:
Intermediate Accounting
ISBN: 978-1118147290
15th edition
Authors: Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield