All securities purchases made by Mechanical Engineers, Inc. described in this problem represent less than a...

Transcribed Image Text:

All securities purchases made by Mechanical Engineers, Inc. described in this problem represent less than a 20% interest in the investee companies. Part I: Mechanical Engineers, Inc. made the following purchases of equity securities during 20X7, the first year any investments were made: Investee Company W Co.** X Co.*** Cost per per share during 20X7* $11.00 $18.00 Number of shares purchased 500 1,000 Total Cost $5,500 $18,000 $23,500 * Costs per share include broker's fees and commissions. **Received $50 dividend during 20X7 from W Co. Received $200 dividend during 20X7 from X Co. Market value per share on Dec. 31, 20X7 $14.00 $17.00 Total Market Value on Dec. 31, 20X7 $7,000 $17,000 $24,000 Mechanical Engineers, Inc. intends to sell the W Co. and X Co. investments in the short term in an open market. Mechanical Engineers, Inc. adjusts its allowance account for securities valuation annually at the end of its fiscal year on December 31 each year. a) How should the 20X7 investments in W Co. and X Co. be classified? b) Prepare journal entries for 20X7 regarding all investment activities of Mechanical Engineers, Inc. c) Describe the effects of the 20X7 securities transactions on the income statement for the year ended December 31, 20X7, and on the statement of financial position as of December 31, 20X7. All securities purchases made by Mechanical Engineers, Inc. described in this problem represent less than a 20% interest in the investee companies. Part I: Mechanical Engineers, Inc. made the following purchases of equity securities during 20X7, the first year any investments were made: Investee Company W Co.** X Co.*** Cost per per share during 20X7* $11.00 $18.00 Number of shares purchased 500 1,000 Total Cost $5,500 $18,000 $23,500 * Costs per share include broker's fees and commissions. **Received $50 dividend during 20X7 from W Co. Received $200 dividend during 20X7 from X Co. Market value per share on Dec. 31, 20X7 $14.00 $17.00 Total Market Value on Dec. 31, 20X7 $7,000 $17,000 $24,000 Mechanical Engineers, Inc. intends to sell the W Co. and X Co. investments in the short term in an open market. Mechanical Engineers, Inc. adjusts its allowance account for securities valuation annually at the end of its fiscal year on December 31 each year. a) How should the 20X7 investments in W Co. and X Co. be classified? b) Prepare journal entries for 20X7 regarding all investment activities of Mechanical Engineers, Inc. c) Describe the effects of the 20X7 securities transactions on the income statement for the year ended December 31, 20X7, and on the statement of financial position as of December 31, 20X7.

Answer rating: 100% (QA)

a The 20X7 investments in W Co and X Co should be classified as trading securities b Part I Journal ... View the full answer