Valuation of Equity Securities
The investment portfolio of Morris Inc. on December 31, 2007, contains the following securities:
• Opus Co. common, 3% ownership, 5,000 shares; cost, $100,000; market value, $95,000; classified as a trading security.
• Garrod Inc. preferred, 2,000 shares; cost, $40,000; market value, $43,000; classified as a trading security.
• Sherrill Inc. common, 30% ownership, 20,000 shares; cost, $1,140,000; market value,
$1,130,000; classified as an influencing investment.
• Jennings Co. common, 15% ownership, 25,000 shares; cost, $67,500; market value,
$50,000; classified as an available for sale security.
Instructions:
1. Give the valuation adjustment required at December 31, 2007, assuming that all investments were purchased in 2007 and none of the indicated declines in market value are considered other than temporary.
2. Assume that the Jennings Co.’s common stock market decline is considered other than temporary. Give the valuation entry required at December 31, 2007, under this change in assumption.
3. Assume that the market values for the long term investment portfolio at December 31, 2008, were as follows:
|
Opus Co common |
$ 102,000 |
|
Garrod Inc. preferred |
43,000 |
|
Sherrill Inc. common |
1,115,000 |
|
Jennings Co common |
45,000 |
Give the valuation entries at December 31, 2008, assuming that the investment categories remain the same and that all declines in 2007 and 2008 are temporary except for the 2007 decline in Jennings Co. stock.