Homestead Financial Corporation owns numerous investments in the shares of other companies. Homestead Financial completed the following

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Homestead Financial Corporation owns numerous investments in the shares of other companies. Homestead Financial completed the following long-term investment transactions:
2014
May 1 Purchased 8,000 shares, which make up 25% of the common shares of Mars Company at total cost of $450,000
Sept. 15 Received a cash dividend of $1.40 per share on the Mars investment
Oct. 12 Purchased 1,000 common shares of Mercury Corporation as a non-strategic investment, paying $22.50 per share
Dec. 14 Received a cash dividend of $0.75 per share on the Mercury investment 31 Received annual report from Mars Company. Net income for the year was $350,000.
At year-end the current fair value of the Mercury shares is $19,200. The fair value of the Mars shares is $740,000. The company reports changes in fair value through net income.
Requirements
1. For which investment is current fair value used in the accounting? Why is fair value used for one investment and not the other?
2. Show what Homestead Financial will report on its year-end balance sheet and income statement for these investments. (It is helpful to use a T-account for the Long-Term Investment in Mars Shares account.) Ignore income tax.
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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...
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Financial Accounting

ISBN: 978-0133472264

5th Canadian edition

Authors: Charles Horngren, William Thomas, Walter Harrison, Greg Berberich, Catherine Seguin

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