Transcript Chapter 8 Instructor - Texas Tech University

Comprehensive Problem
Prepare the following journal entries for Jackson
Company for 2012. Assume there were no other
investments prior to the following activities.
Feb. 17 - Purchased 500 shares of Medical Company
common stock for $20 per share (classified as trading
securities):
Invest in Medical 10,000
Cash
10,000
March 31 - Received a $1.20 per share dividend on
Medical Company stock:
Cash
600
Dividend Income
600
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Comprehensive Problem
April 1 - Purchased 30,000 of the 100,000
outstanding shares of Olde Company common stock
at $10 per share.
Classification of Investment? Equity investment
Invest. In Olde
Cash
300,000
300,000
June 28 - Received a $1.00 share dividend on the
Olde Company stock:
Cash
30,000
Invest. in Olde
30,000
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Comprehensive Problem
Oct. 1 - Purchased 2,000 of Alpha Company
common stock for $15 per share.
These shares are classified as available-for-sale.
Invest in Alpha
Cash
30,000
30,000
Dec. 31 - Olde Company reported annual earnings
of $80,000 to its investors: 80,000 x .3
Invest. in Olde
24,000
Income from Olde
24,000
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Comprehensive Problem
Dec. 31 AJEs - At the end of the year, the following
market prices per share were reported:
Medical Co. (trading) $25 per share
Alpha Co. (AFS)
$12 per share
Olde Co. (equity)
$11 per share
AJE for Medical? $20 to $25 = $5 gain x 500 shares
Invest in Medical
2,500
Unrealized Gain (I/S)
2,500
AJE for Alpha? $15 to $12 = $3 loss x 2,000 shares
Unrealized loss (SE) 6,000
Invest. in Alpha
6,000
AJE for Olde? NO! - equity method - no revaluation
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Comprehensive Problem
What total effect would the previous
transactions have on the income statement
for 2012?
3/31 Dividend income
+
600
12/31 Income from Olde
+ 24,000
12/31 Unrealized gain on Med. + 2,500
Total
+27,100
What effect would the previous transactions
have on accumulated other comprehensive
income (AOCI) for 2012?
12/31 Unrealized loss on Alpha - 6,000
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