Oregon Exchange Company completed the following long-term investment transactions during 2018:
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2018 |
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May 12 |
Purchased 18,200 shares, which make up 25% of the of Nashua at total cost of $340,000. |
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Jul 9 |
Received annual cash of $1.23 per share on the Nashua investment. |
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Sep 16 |
Purchased 1,000 shares of Columbus, Inc., (less than 5% of its outstanding stock) paying $41.50 per share. |
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Oct 30 |
Received cash of $0.33 per share on the Columbus investment. |
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Dec 31 |
Received annual report from Nashua Net income for the year was $540,000. |
At year-end, the fair value of the Columbus stock is $30,100. The fair value of the Nashua stock is $658,000.
Requirements
1. For which investment is fair value used in the accounting? Why is fair value used for one investment and not the other?
2. Show what Oregon Exchange would report on its year-end and income statement for these investment transactions. It is helpful to use a T-account for the Equitymethod Investment account. Ignore income tax.
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