Illinois Exchange Company completed the following long-term investment transactions during 2018:
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2018 |
|
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May 12 |
Purchased 21,000 shares, which make up 45% of the of Exeter at total cost of $340,000. |
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Jul 9 |
Received annual cash of $1.21 per share on Exeter investment. |
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Sep 16 |
Purchased 1,100 shares of Amsterdam, Inc., (less than 5% of its outstanding stock) paying $42.25 per share. |
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Oct 30 |
Received cash of $0.34 per share on the Amsterdam investment. |
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Dec 31 |
Received annual report from Exeter Net income for the year was $580,000. |
At year-end, the fair value of the Amsterdam stock is $30,900. The fair value of the Exeter stock is $652,000.
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 Illinois 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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