P15-20A Accounting for equity investments The beginning balance sheet of Waterfa
ID: 2572095 • Letter: P
Question
P15-20A Accounting for equity investments The beginning balance sheet of Waterfall Source Co. included a $400,000 investment in Evan stock(20% ownership, Waterfall has significant influence over Evan). During the year, Waterfall Source completed the following investment transactions: Mar. 3 May 15 Dec. 15 31 31 31 31 Purchased 4,000 shares at $11 per share of Lili Software common stock as a long-term equity investment, representing 7% ownership, no significant influence. Received a cash dividend of $0.61 per share on the Lili investment. Received a cash dividend of $70,000 from Evan investment. Received Evan's annual report showing $300,000 of net income. Received Lili's annual report showing $120,000 of net income for the year. Evan's stock fair value at year-end was $390,000. Lili's common stock fair value at year-end was $12 per share.Explanation / Answer
date Accounts Title Dr Cr 3-Mar Equity Investment 44000 Cash (4000*11) 44000 15-May Cash 2440 Dividend Income (.61*4000) 2440 15-Dec Cash (70000*20%) 14000 Investment in Evan 14000 31-Dec Investment in Evan 60000 Equity Income (300000*20%) 60000 31-Dec No entry 31-Dec No entry 31-Dec Fair value adjustment 4000 Unrealized gain on Investment 4000 ans 2 Equity Investment 3-Mar 44000 Investment in Evan Beg Bal 400000 15-May 14000 31-Dec 60000 End Bal 446000 Fair value adjustment 31-Dec Unrealized gain on Investment 4000 Unrealized gain on Investment 31-Dec 4000 Dividend Income 15-May 2440 ans 3 Partial Balance Sheet Assets Investments Investment in Evan 446000 Equity Investment 44000 Add: fair value adjustment 4000 48000 Net Investments 494000 Liabilties & Stockholder Equity Stockholder Equity Unrealized Gain on Investment 4000 ans 4 It is reported under Other comprehensive Income which is finally reported in Stockholder Equity
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