Big Co. purchases shares of Little Co starting on 1/1/21. Little Co. has 100,000 shares of stock
Question:
Big Co. purchases shares of Little Co starting on 1/1/21.
Little Co. has 100,000 shares of stock outstanding.
Relevant data shown below:
1/1/21: Purchased 5,000 shares at $18/share, plus $10 commission.11/1/21: Little Co. paid common dividends totaling $10,000
12/31/21: Little Co. stock trading at $20/share
4/1/22: Purchased 6,000 shares at $21/share, plus $10 commission
11/1/22: Little Co. paid dividends totaling $10,000
12/31/22: Little Co stock trading at $19/share
3/1/23: Sold 1,000 shares of Little Co stock at $19.50/share, less $10 commission.
Assume Big uses FIFO to account for their investment in these shares.
Required: Prepare entries to record the preceding transactions, and answer the following questions.
- What would be recorded as the cost of the investment on 1/1/21?
- How much of an unrealized gain or loss is recorded at 12/21/21?
- How much is received as dividends on 11/1/22?
- What is the balance in the "investment in Little" account at 12/31/22?
- What is our TOTAL unrealized gain or loss at 12/31/22? ("xx,xxx gain" or "xx,xxx loss")
- How much of an unrealized gain or loss is reported on the 2022 statement of comprehensive income?
- Assuming that Big uses the FIFO method to account for their "inventory" of Little shares, what is the gain or loss reported on the sale of the shares on 3/1/23? ("xx,xxx gain" or "xx,xxx loss"). Be sure to use the EXACT cost of the shares being sold (either a fraction of the total cost of the 5,000 shares acquired, or work the cost per share out to the last decimal place).
Advanced Financial Accounting
ISBN: 978-0132928939
7th edition
Authors: Thomas H. Beechy, V. Umashanker Trivedi, Kenneth E. MacAulay