The following activities relate to the Hilton Company during the years 2002 and 2003: 2002
Feb. 15 Hilton purchased 5,000 shares of Brock Equipment stock for $35 per share. Dec. 1 Hilton received a $1.25 per share cash dividend from Brock Equipment. 31 Brock Equipment common stock had a closing market price of $32 per share. Brock’s 2002 net income was $60,000. 2003
July 1 Hilton sold all 5,000 shares of Brock Equipment stock for $37 per share. Additional information: Brock Equipment had 25,000 shares of common stock outstanding on January 1, 2002.
1. Prepare journal entries to record the transactions assuming:
a. The securities are classified as available for sale.
b. The equity method is used.
2. Show the amounts that would be reported on the financial statements of Hilton Company at December 31, 2002, under each assumption.
3. Interpretive Question: What is the minimum number of shares of stock that Brock could have outstanding in order for Hilton to use the equity method?