In 2019, its first year of operations, Brighton Finance Corporation, based in London, UK, had the following
Question:
- In 2019, its first year of operations, Brighton Finance Corporation, based in London, UK, had the following transactions regarding its investments (currency in British pound, £):
May. 1 Purchased 600 Clifford Ltd. common shares for £60 per share. This investment is held for trading purposes.
June. 1 Purchased 1,000 bonds of Gladstone Inc. at face-value price of £100 each. These bonds bear interest at 6%, which is paid semi-annually on November 30 and May 31 each year. They were also purchased for trading purposes.
July. 1 Purchased 4,000 Waterloo Corporation common shares for £70 per share. This represents 25% of the issued common shares. Because of this investment, the directors of Waterloo have invited a Brighton’s executive to sit on their board.
Sep. 1 Received a £1-per-share cash dividend from Waterloo Corporation.
Nov. 1 Sold 200 Clifford Ltd. common shares for £63 per share.
Nov. 30 Interest on the Gladstone Inc. bonds was received.
Dec. 15 Received a £0.50-per-share cash dividend on Clifford Ltd. common shares.
Dec. 31 On this date, the fair values per share were £55 for Clifford Ltd. and £73 for Waterloo Corporation. The fair value of the Gladstone bonds was £101 each. Waterloo reported a profit for the year ended December 31, 2019, of £100,000.
Instructions:
- Make journal entries on the above transactions up to Dec. 15.
- Prepare the adjusting journal entries required to report the investments at their fair value and accrue any investment revenue at the end of 2019.
- Show the partial presentation of each investment and the related investment income reflected in Brighton’s 2019 statement of financial position and income statement.
Financial Reporting and Analysis
ISBN: 978-1259722653
7th edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer