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E10-13 Accounting for equity investments
Learning Objectives 3, 4
Captain Investments completed the following investment transactions during 2018:
Jan. 14 Purchased 200 shares of Velcon stock, paying $53 per share. The
investment represents 4% ownership in Velcon’s voting stock. Captain
does not have significant influence over Velcon. Captain intends to hold
the investment for the indefinite future.
Aug. 22 Received a cash dividend of $0.28 per share on the Velcon stock.
Dec. 31 Adjusted the Velcon investment to its current market value of $58.
Requirements
1. Journalize the entries for 2018. Explanations are not required.
2. What account(s) and amount(s), if any, would be reported on Captain’s income statement for
the year ended December 31, 2018?
SOLUTION
E10-14 Accounting for equity investments
Learning Objective 3
1. Revenue from Investments CR $45,000
Money Man Investments completed the following transactions during 2018:
Jan. 14 Purchased 400 shares of Technomite stock, paying $56 per share. The
investment represents 25% ownership in Technomite’s voting stock and
Money Man has significant influence over Technomite. Money Man
intends to hold the investment for the indefinite future.
Aug. 22 Received a cash dividend of $0.27 per share on the Technomite stock.
Dec. 31 Technomite’s current market value is $51 per share.
31 Technomite reported net income of $180,000 for the year ended 2018.
Requirements
1. Journalize Money Man’s transactions. Explanations are not required.
2. Classify and prepare partial financial statements for Money Man’s 25% Technomite
investment for the year ended December 31, 2018.
SOLUTION
Requirement 1
E10-14, cont.
Requirement 1, cont.
E10-14, cont.
Requirement 2
E10-15 Accounting for equity investments
Learning Objective 3
3. $295,750,000 Bal.
Suppose that on January 6, 2018, East Coast Motors paid $280,000,000 for its 35% investment in
Boxcar Motors. East Coast has significant influence over Boxcar after the purchase. Assume
Boxcar earned net income of $90,000,000 and paid cash dividends of $45,000,000 to all
outstanding stockholders during 2018. (Assume all outstanding stock is voting stock.)
Requirements
1. What method should East Cost Motors use to account for the investment in Boxcar Motors?
Give your reasoning.
2. Journalize all required 2018 transactions related to East Cost Motors’s Boxcar investment.
Include an explanation for each entry.
3. Post all 2018 transactions to the investment T-account. What is its balance after all the
transactions are posted? How would this balance be classified on the balance sheet dated
December 31, 2018?
SOLUTION
E10-16 Classifying and accounting for equity investments
Learning Objectives 1, 3, 4
1. Dec. 31 Fair Value Adjustment—Equity Investments CR $32,500
Boston Today Publishers completed the following investment transactions during 2018 and 2019:
2018
Dec. 6 Purchased 2,500 shares of Loveable stock at a price of $24.00 per share,
intending to sell the investment next month. Boston did not have
significant influence over Loveable.
23 Received a cash dividend of $1.50 per share on the Loveable stock.
31 Adjusted the investment to its market value of $11.00 per share.
2019
Jan. 27 Sold the Loveable stock for $18.20 per share.
Requirements
1. Journalize Boston Today’s investment transactions. Explanations are not required.
2. On December 31, 2018, how would the Loveable stock be classified and at what value would
it be reported on the balance sheet?
SOLUTION
E10-16, cont.
Requirement 1, cont.
E10-17 Computing rate of return on total assets
Learning Objective 5
Avg. total assets $368,000,000
Montane Exploration Company reported these figures for 2018 and 2017:
Income Statement—
partial:
2018 2017
Interest Expense $
16,700,000
$
16,500,000
Net Income 16,900,000 20,200,000
Balance Sheet—
partial:
Dec. 31,
2018
Dec. 31,
2017
Total Assets $
316,000,000
$
420,000,000
Compute the rate of return on total assets for 2018. (Round to two decimals.)
SOLUTION
