On January 1, 1993, Southern Transport purchases 40%. of the common stock of Delta Shipping, Inc.,...

 

Transcribed Image Text:

On January 1, 1993, Southern Transport purchases 40%. of the common stock of Delta Shipping, Inc., for $900,000, which corresponds to the underlying book value. Delta Shipping, Inc., has issued common stock only. At December 31, 1993, Delta Shipping reported net income for the year of $400,000 and paid cash dividends of $180,000. Southern Transport uses the equity method to account for this invest- ment: a Prepare all journal entries in the accounting records of Southern Transport relating to the investment during 1993. A b During 1994, Delta Shipping, Inc., reports a net loss of $300,000 and pays no dividends. Compute the carrying value of Southern Transport's investment in Delta Shipping, Inc., at the end of 1993 (refer to your answer to part a) and at the end of 1994. c Based upon quoted market prices, the fair market value of Southern Trans- port's investment in Delta Shipping, Inc. was $995,000 at the end of 1993 but has fallen to $850,000 at the end of 1994. Do these market values affect amounts reported in the balance sheet for this investment? Are these market values reflected in any way in the financial statements? On January 1, 1993, Southern Transport purchases 40%. of the common stock of Delta Shipping, Inc., for $900,000, which corresponds to the underlying book value. Delta Shipping, Inc., has issued common stock only. At December 31, 1993, Delta Shipping reported net income for the year of $400,000 and paid cash dividends of $180,000. Southern Transport uses the equity method to account for this invest- ment: a Prepare all journal entries in the accounting records of Southern Transport relating to the investment during 1993. A b During 1994, Delta Shipping, Inc., reports a net loss of $300,000 and pays no dividends. Compute the carrying value of Southern Transport's investment in Delta Shipping, Inc., at the end of 1993 (refer to your answer to part a) and at the end of 1994. c Based upon quoted market prices, the fair market value of Southern Trans- port's investment in Delta Shipping, Inc. was $995,000 at the end of 1993 but has fallen to $850,000 at the end of 1994. Do these market values affect amounts reported in the balance sheet for this investment? Are these market values reflected in any way in the financial statements?

Answer rating: 100% (QA)

Equity method is used for accounting of investment in associates a Journal entries in books of South... View the full answer