Change to Equity Method
On January 1, 2013, Lion Company paid $720,000 for 12,000 sharesof Wolf Company's voting common stock, which was a 10% interest inWolf. Lion does not have the ability to exercise significantinfluence over the operating and financial policies of Wolf. Lionreceived dividends of $1.00 per share from Wolf on October 2, 2013.Wolf reported net income of $380,000 for the year ended December31, 2013, and the ending market price of its shares was $65.
On July 2, 2014, Lion paid $2,412,000 for 36,000 additionalshares of Wolf's voting common stock, which represents a 30%investment in Wolf. The fair values of all of Wolf's assets, net ofliabilities, were equal to their book values of $8,040,000. As aresult of this transaction, Lion has the ability to exercisesignificant influence over the operating and financial policies ofWolf. Lion received dividends of $1.00 per share from Wolf on April2, 2014,and $1.25 per share on October 1, 2014. Wolf reported netincome of $480,000 for the year ended December 31, 2014, and$192,000 for the 6 months ended December 31, 2014.
Required:
For Lion, show the dividend income for 2013, as well as theDecember 31, 2013, unrealized holding gain or loss for theavailable-for-sale securities and carrying value of the investmentaccount.
Dividend income for 2013
12,000 shares x $1 = $12,000
12/31/13 unrealized holding gain in value of available-for-salesecurities
= ($65 - $720,000/12,000) x 12,000
= $5 x 12,000
= $60,000
12/31/13 carrying value of investment
= $65 x 12,000
= $780,000
Assuming that Lion issues comparative financial statements for2013 and 2014, show the investment income for 2013 and 2014, aswell as the December 31, 2013 and 2014 carrying value of theinvestment account.
Investment income for 2013
= $380,000 x 10%
= 38,000
Investment income for 2014
$ X
12/31/14 carrying value
$ X
I can not figure out the Xs. Please show how you got youranswers. Thank you!
Change to Equity Method
On January 1, 2013, Lion Company paid $720,000 for 12,000 sharesof Wolf Company's voting common stock, which was a 10% interest inWolf. Lion does not have the ability to exercise significantinfluence over the operating and financial policies of Wolf. Lionreceived dividends of $1.00 per share from Wolf on October 2, 2013.Wolf reported net income of $380,000 for the year ended December31, 2013, and the ending market price of its shares was $65.
On July 2, 2014, Lion paid $2,412,000 for 36,000 additionalshares of Wolf's voting common stock, which represents a 30%investment in Wolf. The fair values of all of Wolf's assets, net ofliabilities, were equal to their book values of $8,040,000. As aresult of this transaction, Lion has the ability to exercisesignificant influence over the operating and financial policies ofWolf. Lion received dividends of $1.00 per share from Wolf on April2, 2014,and $1.25 per share on October 1, 2014. Wolf reported netincome of $480,000 for the year ended December 31, 2014, and$192,000 for the 6 months ended December 31, 2014.
Required:
For Lion, show the dividend income for 2013, as well as theDecember 31, 2013, unrealized holding gain or loss for theavailable-for-sale securities and carrying value of the investmentaccount.
| Dividend income for 2013 12,000 shares x $1 = $12,000 12/31/13 unrealized holding gain in value of available-for-salesecurities = ($65 - $720,000/12,000) x 12,000 = $5 x 12,000 = $60,000 12/31/13 carrying value of investment = $65 x 12,000 = $780,000 Assuming that Lion issues comparative financial statements for2013 and 2014, show the investment income for 2013 and 2014, aswell as the December 31, 2013 and 2014 carrying value of theinvestment account.
= $380,000 x 10% = 38,000 Investment income for 2014 $ X 12/31/14 carrying value $ X I can not figure out the Xs. Please show how you got youranswers. Thank you! |
Related questions
Nineteen Measures of Solvency and Profitability
The comparative financial statements of Blige Inc. are asfollows. The market price of Blige Inc. common stock was $59 onDecember 31, 2014.
| Blige Inc. | ||||||
| Comparative Retained EarningsStatement | ||||||
| For the Years Ended December 31, 2014 and2013 | ||||||
| 2014 | 2013 | |||||
| Retained earnings, January 1 | $1,409,100 | $1,196,600 | ||||
| Add net income for year | 334,400 | 245,100 | ||||
| Total | $1,743,500 | $1,441,700 | ||||
| Deduct dividends | ||||||
| On preferred stock | $10,500 | $10,500 | ||||
| On common stock | 22,100 | 22,100 | ||||
| Total | $32,600 | $32,600 | ||||
| Retained earnings, December 31 | $1,710,900 | $1,409,100 | ||||
| Blige Inc. | ||||
| Comparative Income Statement | ||||
| For the Years Ended December 31, 2014 and2013 | ||||
| 2014 | 2013 | |||
| Sales | $2,021,210 | $1,859,500 | ||
| Sales returns and allowances | 10,060 | 6,540 | ||
| Net sales | $2,011,150 | $1,852,960 | ||
| Cost of goods sold | 747,520 | 687,720 | ||
| Gross profit | $1,263,630 | $1,165,240 | ||
| Selling expenses | $421,760 | $527,180 | ||
| Administrative expenses | 359,270 | 309,620 | ||
| Total operating expenses | 781,030 | 836,800 | ||
| Income from operations | $482,600 | $328,440 | ||
| Other income | 25,400 | 20,960 | ||
| $508,000 | $349,400 | |||
| Other expense (interest) | 128,000 | 70,400 | ||
| Income before income tax | $380,000 | $279,000 | ||
| Income tax expense | 45,600 | 33,900 | ||
| Net income | $334,400 | $245,100 | ||
| Blige Inc. | |||||||
| Comparative Balance Sheet | |||||||
| December 31, 2014 and 2013 | |||||||
| Dec. 31,2014 | Dec. 31,2013 | ||||||
| Assets | |||||||
| Current assets | |||||||
| Cash | $323,880 | $344,370 | |||||
| Temporary investments | 490,200 | 570,680 | |||||
| Accounts receivable (net) | 357,700 | 335,800 | |||||
| Inventories | 262,800 | 204,400 | |||||
| Prepaid expenses | 61,269 | 68,870 | |||||
| Total current assets | $1,495,849 | $1,524,120 | |||||
| Long-term investments | 890,861 | 321,241 | |||||
| Property, plant, and equipment (net) | 2,080,000 | 1,872,000 | |||||
| Total assets | $4,466,710 | $3,717,361 | |||||
| Liabilities | |||||||
| Current liabilities | $515,810 | $788,261 | |||||
| Long-term liabilities | |||||||
| Mortgage note payable, 8%, due 2019 | $720,000 | $0 | |||||
| Bonds payable, 8%, due 2015 | 880,000 | 880,000 | |||||
| Total long-term liabilities | $1,600,000 | $880,000 | |||||
| Total liabilities | $2,115,810 | $1,668,261 | |||||
| Stockholders' Equity | |||||||
| Preferred $0.70 stock, $20 par | $300,000 | $300,000 | |||||
| Common stock, $10 par | 340,000 | 340,000 | |||||
| Retained earnings | 1,710,900 | 1,409,100 | |||||
| Total stockholders' equity | $2,350,900 | $2,049,100 | |||||
| Total liabilities and stockholders' equity | $4,466,710 | $3,717,361 | |||||
Required:
Determine the following measures for 2014, rounding to onedecimal place, except for dollar amounts, which should be roundedto the nearest cent. Use the rounded answer of the requirement forsubsequent requirement, if required. Assume 365 days a year.
| 12. Ratio of net sales to assets | ||
| 13. Rate earned on total assets | % | |
| 14. Rate earned on stockholders' equity | % | |
| 15. Rate earned on common stockholders'equity | % | |
| 16. Earnings per share on common stock | $ | |
| 17. Price-earnings ratio | ||
| 18. Dividends per share of common stock | $ | |
| 19. Dividend yield | % |
c. Determine the amount Electronics Serviceswould report for paid-in capital in excess of par. PAID IN CAPITAL EXCESS OF PAR( ) |
| d. | What is the total amount ofcapital contributed by the owners? TOTAL PAID IN CAPITAL ( ) |
| e. | What amount of total assets would Electronics Services report onthe December 31, 2014, balance sheet? TOTAL ASSETS ( ) | |||
| 10 Effect of cash dividends on financial statements
DASTER CORPORATION HORIZONTAL STATEMENT MODEL DATE ASSETS=LIABILITIES+COMMON+RETAINED REVENUE-EXPENSES=NETSTATEMENT STOCK EARNINGS INCOME CASH FLOWS 10/01 11/01 12/15 |
Nineteen Measures of Solvency and Profitability
The comparative financial statements of Blige Inc. are asfollows. The market price of Blige Inc. common stock was $59 onDecember 31, 2014.
| Blige Inc. | ||||||
| Comparative Retained EarningsStatement | ||||||
| For the Years Ended December 31, 2014 and2013 | ||||||
| 2014 | 2013 | |||||
| Retained earnings, January 1 | $1,409,100 | $1,196,600 | ||||
| Add net income for year | 334,400 | 245,100 | ||||
| Total | $1,743,500 | $1,441,700 | ||||
| Deduct dividends | ||||||
| On preferred stock | $10,500 | $10,500 | ||||
| On common stock | 22,100 | 22,100 | ||||
| Total | $32,600 | $32,600 | ||||
| Retained earnings, December 31 | $1,710,900 | $1,409,100 | ||||
| Blige Inc. | ||||
| Comparative Income Statement | ||||
| For the Years Ended December 31, 2014 and2013 | ||||
| 2014 | 2013 | |||
| Sales | $2,021,210 | $1,859,500 | ||
| Sales returns and allowances | 10,060 | 6,540 | ||
| Net sales | $2,011,150 | $1,852,960 | ||
| Cost of goods sold | 747,520 | 687,720 | ||
| Gross profit | $1,263,630 | $1,165,240 | ||
| Selling expenses | $421,760 | $527,180 | ||
| Administrative expenses | 359,270 | 309,620 | ||
| Total operating expenses | 781,030 | 836,800 | ||
| Income from operations | $482,600 | $328,440 | ||
| Other income | 25,400 | 20,960 | ||
| $508,000 | $349,400 | |||
| Other expense (interest) | 128,000 | 70,400 | ||
| Income before income tax | $380,000 | $279,000 | ||
| Income tax expense | 45,600 | 33,900 | ||
| Net income | $334,400 | $245,100 | ||
| Blige Inc. | |||||||
| Comparative Balance Sheet | |||||||
| December 31, 2014 and 2013 | |||||||
| Dec. 31,2014 | Dec. 31,2013 | ||||||
| Assets | |||||||
| Current assets | |||||||
| Cash | $323,880 | $344,370 | |||||
| Temporary investments | 490,200 | 570,680 | |||||
| Accounts receivable (net) | 357,700 | 335,800 | |||||
| Inventories | 262,800 | 204,400 | |||||
| Prepaid expenses | 61,269 | 68,870 | |||||
| Total current assets | $1,495,849 | $1,524,120 | |||||
| Long-term investments | 890,861 | 321,241 | |||||
| Property, plant, and equipment (net) | 2,080,000 | 1,872,000 | |||||
| Total assets | $4,466,710 | $3,717,361 | |||||
| Liabilities | |||||||
| Current liabilities | $515,810 | $788,261 | |||||
| Long-term liabilities | |||||||
| Mortgage note payable, 8%, due 2019 | $720,000 | $0 | |||||
| Bonds payable, 8%, due 2015 | 880,000 | 880,000 | |||||
| Total long-term liabilities | $1,600,000 | $880,000 | |||||
| Total liabilities | $2,115,810 | $1,668,261 | |||||
| Stockholders' Equity | |||||||
| Preferred $0.70 stock, $20 par | $300,000 | $300,000 | |||||
| Common stock, $10 par | 340,000 | 340,000 | |||||
| Retained earnings | 1,710,900 | 1,409,100 | |||||
| Total stockholders' equity | $2,350,900 | $2,049,100 | |||||
| Total liabilities and stockholders' equity | $4,466,710 | $3,717,361 | |||||
Required:
Determine the following measures for 2014, rounding to onedecimal place, except for dollar amounts, which should be roundedto the nearest cent. Use the rounded answer of the requirement forsubsequent requirement, if required. Assume 365 days a year.
| 1. Working capital | $ | |
| 2. Current ratio | ||
| 3. Quick ratio | ||
| 4. Accounts receivable turnover | ||
| 5. Number of days' sales in receivables | days | |
| 6. Inventory turnover | ||
| 7. Number of days' sales in inventory | days | |
| 8. Ratio of fixed assets to long-termliabilities | ||
| 9. Ratio of liabilities to stockholders'equity | ||
| 10. Number of times interest charges areearned | ||
| 11. Number of times preferred dividends areearned | ||
| 12. Ratio of net sales to assets | ||
| 13. Rate earned on total assets | % | |
| 14. Rate earned on stockholders' equity | % | |
| 15. Rate earned on common stockholders'equity | % | |
| 16. Earnings per share on common stock | $ | |
| 17. Price-earnings ratio | ||
| 18. Dividends per share of common stock | $ | |
| 19. Dividend yield | % |
