Company A has the following investments as of January 1, 2019: 1. 5,000 shares (5% ownership)...

 

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Company A has the following investments as of January 1, 2019: 1. 5,000 shares (5% ownership) of Company Z with an original cost of $150,000 and 10,000 shares (10% ownership) of Company Y with an original cost of $190,000. Company A has no influence over the operations of Company Z or Company Y as a result of this investment. 2. 3,000, $1,000, 8% from Company X on January 1, 2018. The bonds mature on January 1, 2023 with interest payable on January 1 of each year. The bonds were purchased for $3,123,006 at a yield rate of 7%. Company A uses the effective interest method and has these bonds designated as available-for-sale. During 2019 Company A completed the following transactions: • March 1 - Sold 2,000 shares of Company Z for $32/share • April 1 - Purchased 30,000 shares of Company X for $45/share, these shares represent 30% of the outstanding shares of Company X and allow Company A to exert significant influence. The following information is available about the performance of Company A's investments during 2019. Investment Company Z Company Y Company X Net Income $ 650,000 1,200,500 850,000 Dividends Declared/Paid $ 36,000 45,000 20,000 Price/share 12/31/19 $30 19 45 Price/bond 12/32/19 $ 940 N/A 1,045 Company A uses a separate fair value adjustment accounts for its debt and equity securities. The balances in the fair value adjustment - equity account and the fair value adjustment - debt account on December 31, 2018 were ($2,000) and $82,000, respectively. Required a) What would be the December 31, 2019 balance in the equity investment account? Show (a screen shot from Excel is acceptable) and explain your calculation. How does the balance of this account differ from the number that would be reported as equity investments in the financial statements? You do not need to calculate the financial statement amount, just describe why there would be a difference or not. b) Prepare any journal entries required during 2019 for debt investments. c) Which investment has the greatest potential to cause income volatility? Why? Company A has the following investments as of January 1, 2019: 1. 5,000 shares (5% ownership) of Company Z with an original cost of $150,000 and 10,000 shares (10% ownership) of Company Y with an original cost of $190,000. Company A has no influence over the operations of Company Z or Company Y as a result of this investment. 2. 3,000, $1,000, 8% from Company X on January 1, 2018. The bonds mature on January 1, 2023 with interest payable on January 1 of each year. The bonds were purchased for $3,123,006 at a yield rate of 7%. Company A uses the effective interest method and has these bonds designated as available-for-sale. During 2019 Company A completed the following transactions: • March 1 - Sold 2,000 shares of Company Z for $32/share • April 1 - Purchased 30,000 shares of Company X for $45/share, these shares represent 30% of the outstanding shares of Company X and allow Company A to exert significant influence. The following information is available about the performance of Company A's investments during 2019. Investment Company Z Company Y Company X Net Income $ 650,000 1,200,500 850,000 Dividends Declared/Paid $ 36,000 45,000 20,000 Price/share 12/31/19 $30 19 45 Price/bond 12/32/19 $ 940 N/A 1,045 Company A uses a separate fair value adjustment accounts for its debt and equity securities. The balances in the fair value adjustment - equity account and the fair value adjustment - debt account on December 31, 2018 were ($2,000) and $82,000, respectively. Required a) What would be the December 31, 2019 balance in the equity investment account? Show (a screen shot from Excel is acceptable) and explain your calculation. How does the balance of this account differ from the number that would be reported as equity investments in the financial statements? You do not need to calculate the financial statement amount, just describe why there would be a difference or not. b) Prepare any journal entries required during 2019 for debt investments. c) Which investment has the greatest potential to cause income volatility? Why?

Answer rating: 100% (QA)

a The December 31 2019 balance in the equity investment account would be 4054000 This is calculated ... View the full answer