During January 2020, Optimum Glass Company purchased the following securities for its long-term investment portfolio:

D-Light Corporation common stock: 14,250 shares (95,000 outstanding) at $11 per share Fluorescent Company bonds: $400,000 (20-year, 7 percent) purchased at par (not to be held to maturity or actively traded)

All companies have a December 31 year-end. Subsequent to acquisition, the following data were available:

Required:

1. What accounting method should be used for the investment in D-Light common stock? Fluorescent bonds? Why?

2. Give the journal entries for the Optimum Glass Company for each year in parallel columns (if none, explain why) for each of the following:

a. Purchase of the investments.

b. Income reported by D-Light Corporation and Fluorescent Company.

c. Dividends and interest received from D-Light Corporation and Fluorescent Company.

d. Fair value effects at year-end.

3. For each year, show how the following amounts should be reported on the financial statements:

a. Long-term investments.

b. Other comprehensive income for unrealized gains/losses.

c. Revenues and gains/losses.

Transcribed Image Text:

2020 2021 Net income reported at December 31: D-Light Corporation 31,000 41,000 Fluorescent Company 360,000 550,000 Dividends and interest paid during the year: D-Light Corporation (cash dividends per share) 0.50 0.70 Fluorescent Company (annual interest) 28,000 28,000 Fair value at December 31: D-Light Corporation (per share) 10.00 11.50 Fluorescent Company 375,000 385,000