Illinois Exchange Company completed the following long term investment transactions during 2018 2018 May 12 Purchased 21,000 shares, which make up 45 of the common stock of Exeter Corporation at total cost of $340,000 Jul 9 Received annual cash dividend of $1 21 per share on Exeter investment Sep 1...

Req 1 Current fair value is used to account for Amsterdam Inc which is considered to be an investmen ...

Illinois Exchange Company completed the following long-term investment transactions during 2018: 2018 May 12 Purchased 21,000 shares,

Question:

Illinois Exchange Company completed the following long-term investment transactions during 2018:

2018
May 12	Purchased 21,000 shares, which make up 45% of the common stock of Exeter Corporation at total cost of $340,000.
Jul 9	Received annual cash dividend of $1.21 per share on Exeter investment.
Sep 16	Purchased 1,100 shares of Amsterdam, Inc., common stock (less than 5% of its outstanding stock) paying $42.25 per share.
Oct 30	Received cash dividend of $0.34 per share on the Amsterdam investment.
Dec 31	Received annual report from Exeter Corporation. Net income for the year was $580,000.

At year-end, the fair value of the Amsterdam stock is $30,900. The fair value of the Exeter stock is $652,000.

Requirements

1. For which investment is fair value used in the accounting? Why is fair value used for one investment and not the other?

2. Show what Illinois Exchange would report on its year-end balance sheet and income statement for these investment transactions. It is helpful to use a T-account for the Equitymethod Investment account. Ignore income tax.

Common Stock
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... 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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