Task: Fair Value and Equity Method Compared
Gregory Inc. acquired 20% of the outstanding common stock of Handerson Inc. on December 31, 2012. The purchase price was $1,260,000 for 50,000 shares. Handerson Inc. declared and paid an $0.88 per share cash dividend on June 30 and on December 31, 2013. Handerson reported net income of $746,000 for 2013. The fair value of Handerson's stock was $30 per share at December 31, 2013.
Question 1: Prepare the journal entries for Gregory Inc. for 2012 and 2013, assuming that Gregory cannot exercise significant influence over Handerson. The securities should be classified as available-for-sale.
Date Description/Account Debit Credit
12/31/12
06/30/13
12/31/13
(To record dividend)
Question 2: Prepare the journal entries for Gregory Inc. for 2012 and 2013, assuming that Gregory can exercise significant influence over Handerson.
Date Description/Account Debit Credit
12/31/12
06/30/13
12/31/13
(To record dividend)
Question 3: At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2013? What is the total net income reported in 2013 under each of these methods? (If answer is zero, please enter a 0 do not leave any fields blank.)
Fair Value Method Equity Method
Investment amount(bal. sheet) $_____________ $__________
Dividend rev.(inc. statement) ___________ ______________Revenue from investment
(inc. statement)