Accounting for Long Term Investments
On January 2, 2006, Bradley Company acquired 20% of the 100,000 shares of outstanding common stock of Caldecott Corp. for $20 per share. The purchase price was equal to Caldecott’s underlying book value. Bradley plans to hold this stock to influence the activities of Caldecott.
The following data are applicable for 2006 and 2007:
|
|
2006 |
2007 |
|
Caldecott dividends (paid Oct. 31) |
$30,000 |
$32,000 |
|
Caldecott earnings |
75,000 |
90,000 |
|
Caldecott stock market price at year end |
25 |
24 |
On January 2, 2008, Bradley Company sold 5,000 shares of Caldecott stock for $24 per share. During 2008, Caldecott reported net income of $64,000, and on October 31, 2008, Caldecott paid dividends of $20,000. At December 31, 2008, after a significant stock market decline, which is expected to be temporary, Caldecott’s stock was selling for $15 per share. After selling the 5,000 shares, Bradley does not expect to exercise significant influence over Caldecott, and the shares are classified as available for sale.
Instructions:
1. Make all journal entries for Bradley Company for 2006, 2007, and 2008, assuming the 20% original ownership interest allowed significant influence over Caldecott.
2. Make the year end valuation adjusting entries for Caldecott Company for 2006, 2007, and 2008, assuming the 20% original ownership interest did not allow significant influence over Caldecott.