IV. On January 1, 2018, Giant Co. purchased the following investments for cash $

Question

IV. On January 1, 2018, Giant Co. purchased the following investments for cash $15,000 ....$240,000 Both Rock and Boulder Company have 100,000 total common shares outstanding. During 2018, Rock and Boulder had the following information: Cash Market Price NET INCOME Dividends/share Per share @ 12/31/2018 Rock Co. $100,000 $0.20/sh $1.40/sh Boulder Co $350,000 $0.50/sh$6.50/sh 1. What type of investment is Rock Co.? What type of investment is Boulder Co.? 2. For the investment in Rock Co., prepare the journal entries necessary for the following transactions on Giant's books (journal paper provided on next page) A. Purchase of the Rock Co. shares on January 1,2018. B. Dividends received from Rock Co. during 2018. C. Any adjustment for Net Income earned by Rock Co, if necessary, during 2018 D. Any adjustment for year-end market price of Rock Co., if necessary. 3. For the investment in Boulder Co., prepare the journal entries necessary for the following transactions on Giant's books (journal paper provided on next page) A. Purchase of the Boulder Co. shares on January 1, 2018. B. Dividends received from Boulder Co. during 2018. C. Any adjustment for Net Income earned by Boulder Co., if necessary, during 2018. D. Any adjustment for year-end market price of Boulder Co., if necessary.

Explanation / Answer

1. Investment in Rock Co. is Available-for-Sale securities since it is less than 20% of Rock's outstanding common stock and it is not held for trading.

Investment in Boulder Co. is Influential securities since it is more than 20% but less than 50% of Boulder's outstanding common stock.

2 Transaction Account Titles and Explanation Debit Credit A. Investment in Rock Co. 15000 Cash 15000 (To record purchase of shares in Rock Co.) B. Cash 2000 Dividends revenue (10000 shs x $0.20) 2000 (To record dividends received from Rock Co.) C. No entry required D. Unrealized loss on available for sale securities 1000 Valuation allowance for available for sale securities 1000 [$15000 - (10000 shs x $1.40)] (To record investments at fair value)

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