On July 1, 2021, Clearwater Inc. purchased 7.200 shares of the outstanding common stock of Mountain Corporation at a cost of $192,000. Mountain had 24,000 shares of outstanding common stock. The total book value and total fair value of Mountain's individual net assets on July 1, 2021, are both $640,000. The total fair value of the 24,000 shares of Mountain's common stock on December 31, 2021, is $730,000. Both companies have a January through December fiscal year. The following data pertains to Mountain Corporation during 2021 Dividends declared and paid, January 1-June 30 Dividends declared and paid, July 1-December 311 Net income, January 1-June 30 Net income, July 1-December 31 Required: $11,400 $11,400 $13,400 $17,400 1. Prepare the necessary entries for 2021 under the equity method (other than for the purchase). 2. Prepare any necessary entries for 2021 (other than for the purchase) that would be required if the securities were accounted for under the fair value through net income method.
On July 1, 2021, Clearwater Inc. purchased 7.200 shares of the outstanding common stock of Mountain Corporation at a cost of $192,000. Mountain had 24,000 shares of outstanding common stock. The total book value and total fair value of Mountain's individual net assets on July 1, 2021, are both $640,000. The total fair value of the 24,000 shares of Mountain's common stock on December 31, 2021, is $730,000. Both companies have a January through December fiscal year. The following data pertains to Mountain Corporation during 2021 Dividends declared and paid, January 1-June 30 Dividends declared and paid, July 1-December 311 Net income, January 1-June 30 Net income, July 1-December 31 Required: $11,400 $11,400 $13,400 $17,400 1. Prepare the necessary entries for 2021 under the equity method (other than for the purchase). 2. Prepare any necessary entries for 2021 (other than for the purchase) that would be required if the securities were accounted for under the fair value through net income method.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter13: Investments And Long-term Receivables
Section: Chapter Questions
Problem 8MC
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step 1: Introduction to journal entries:
VIEWStep 2: Working note- Determining the unrealized gain/(loss) at the end of the year:
VIEWStep 3: Requirement 1- Preparing the required journal entries (other than purchase) using equity method:
VIEWStep 4: Requirement 2- Preparing the required journal entries (other than purchase) using fair value method:
VIEWSolution
VIEWStep by step
Solved in 5 steps with 9 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning