(Learning Objective 1, 2: Reporting investments on the balance sheet and the related revenue on the income statement) Washington Exchange Company completed the following long term investment transactions during 20X6:
|
20X6 |
|
|
May 12 |
Purchased 20,000 shares, which make up 35% of the common stock of Fellingham Corporation at total cost of $370,000. |
|
July 9 |
Received annual cash dividend of $1.26 per share on the Fellingham investment. |
|
Sept. 16 |
Purchased 800 shares of Tomassini, Inc., common stock as an available for sale investment, paying $41.50 per share. |
|
Oct. 30 |
Received cash dividend of $0.30 per share on the Tomassini investment. |
|
Dec. 31 |
Received annual report from Fellingham Corporation. Net income for the year was $510,000. |
At year end the current market value of the Tomassini stock is $30,600. The market value of the Fellingham stock is $652,000.
Required
1. For which investment is current market value used in the accounting? Why is market value used for 1 investment and not the other?
2. Show what Washington would report on its year end balance sheet and income statement for these investment transactions. It is helpful to use a T account for the Long Term Investment in Fellingham Stock account. Ignore income tax.