On August 4, 2014, Cappio Corporation purchased 1,000 shares of Maxwell Company for $ 45,000. The following information applies to the fair value of Maxwell Company:
Per Share
12/ 31/ 2014…………….. $ 52
12/ 31/ 2015………………. 47
12/ 31/ 2016………………. 38
Maxwell Company declares and pays cash dividends of $ 2 per share on June 1 of each year.
Required:
1. Prepare journal entries to record the facts in the case, assuming that Cappio considers the shares to be available- for- sale securities.
2. Prepare journal entries to record the facts in the case, assuming that Cappio considers the shares to be trading securities.
3. Prepare journal entries to record the facts in the case, assuming that Cappio uses the equity method to account for the investment. Cappio owns 30 percent of Maxwell and Maxwell reported $ 50,000 of net income each year.