On October 15, 2020, Buyer Incorporated (Buyer) purchased 3,000 common shares of Petersburg Corporation for $38,000 plus
Question:
On October 15, 2020, Buyer Incorporated ("Buyer") purchased 3,000 common shares of Petersburg Corporation for $38,000 plus $2,000 of commissions.
On December 31, 2020, the 3;000 Petersburg common shares had a fair value of $46,000. If these shares were to be sold, a commission of $4,000 would have to
be paid.
On January 1, 2021, Buyer sells 2,250 of the 3,000 Petersburg common shares for gross proceeds of $16.00 per share. Commission of $2,250 were paid.
On December 31, 2021, the remaining 750 Petersburg common shares have a fair value of $11,500.
REQUIRED
Assume that Buyer accounts for this investment using the B/-NI method.
1. Prepare the applicable 2020 journal entries.
2. Prepare the journal entry for the sale on January 1, 2021
3. When should a company use the FV-NI method of accounting ?
Essentials of Managerial Finance
ISBN: 978-0324422702
14th edition
Authors: Scott Besley, Eugene F. Brigham