Eastwood Enterprises owns 30,000 shares of the Van Cleef Company (5% of the outs

Question

Eastwood Enterprises owns 30,000 shares of the Van Cleef Company (5% of the outstanding equity of Van Cleef). Eastwood is trying to determine Van Cleef’s fair value. The relevant facts are as follows: • Eastwood bought the Van Cleef shares earlier in the accounting period for $10/share at a time when the shares were publicly traded on the New York Stock Exchange. • Since Eastwood bought the shares, Van Cleef has been delisted and there is no longer an active market in the Van Cleef shares. • Eastwood’s internal valuation specialist estimates the Van Cleef shares to be worth $8/share. Eastwood plans to continue holding the shares, but may someday sell them if their value increases sufficiently.

Required: 1. What is the fair value of Eastwood’s investment in Van Clef?

2. Prepare a journal entry to record any necessary fair value adjustment.

Explanation / Answer

Calculation of fair value of Eastwood’s investment in Van Clef: Number of Shares 30000 Fair Value per share $8.00 Fair value of Eastwood’s investment in Van Clef = 30,000 * 8 = $240,000.00 Journal Entry to record any necessary fair value adjustment: Account title and explanation Debit Credit Fair value adjustment (30000 Shares * ($10-$8) 60000 Investment in Van Clef 60000 (being investment valued at fair value)

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