Assessing Financial Statement Effects of Passive and Equity Method Investments O

Question

Assessing Financial Statement Effects of Passive and Equity Method Investments On January 1, Ball Corporation purchased shares of Leftwich Company common stock.

(a) Assume that the stock acquired by Ball represents 15% of Leftwich's voting stock and that Ball has no influence over Leftwich's business decisions. Use the financial statement effects template (with amounts and accounts) to record the following transactions:

(1) Ball purchased 10,000 common shares of Leftwich at $17 cash per share.

(2) Leftwich reported annual net income of $80,000.

(3) Ball received a cash dividend of $1.20 per common share from Leftwich.

(4) Year-end market price of Leftwich common stock is $19 per share. Use negative signs with your answers, when appropriate.

(b) Assume that the stock acquired by Ball represents 30% of Leftwich's voting stock and that Ball accounts for this investment using the equity method since it is able to exert significant influence. Use the financial statement effects template (with amounts and accounts) to record the following transactions:

(1) Ball purchased 10,000 common shares of Leftwich at $17 cash per share.

(2) Leftwich reported annual net income of $80,000.

(3) Ball received a cash dividend of $1.20 per common share from Leftwich.

(4) Year-end market price of Leftwich common stock is $19 per share. Use negative signs with answers, when appropriate.

Balance Sheet Contributed Noncash Assets Earned Transaction Cash Asset + Liabilities Capital Capital 170000 170000 12000 12000 Income Statement Net Income RevenueE Expenses I

Explanation / Answer

a. Ball has no influence over Leftwich's business decisions :

Balance Sheet :

Income Statement:

b. Balance Sheet:

Income Statement :

Transaction Cash Assets Non Cash Assets Liabilities Contributed Capital Earned Capital $ $ $ $ $ 1. - 170,000 170,000 2. 0 0 0 0 0 3. 12,000 12,000 4. 20,000 20,000

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