Smith obtained following nformation related to the investments from Acme's ecember 31, Year , financial state • 20% ownership interest in Kern Co., represented by 200,000 shares of outstanding common stock purchased 7, for $600,000. . • Acquired debt securities from Wand Co., on January 2, Year 7, for $300,000 with the intent to hold them for a s time. • On January 2, Year 7, the carrying values of the acquired investments equaled their purchase price. • Kern reported earnings of $400,000 for the year ended December 31, Year 7, and declared and paid dividends during Year 7. • Acme received $52,000 in interest payments from Wand Co. during the year. • On December 31, Year 7. Kern's common stock was trading over-the counter at $18 per share. The fair value of from Wand was $360,000. • The investment in Kern is accounted for using the equity method and the debt securities are accounted for as Smith recalculated the amounts reported in Acme's December 31, Year 7, financial statements, and determined that t Stressing that the information available in the financial statements was limited, Smith advised Johnson that, assumin applied generally accepted accounting principles, Acme may have appropriately used two different methods to acco investments. Acme did not elect the fair value option regarding its financial instruments. Required: Complete the schedule indicating the amounts Acme should report for the two investments in its December 31, Year statement of income, and other comprehensive income. Ignore income taxes. (Leave no answer blank - enter O for have an amount to enter.) Carrying Value on Balance Sheet Kern investment on B/S Trading securities on B/S Income on Income Statement (I/S) From Kern investment From trading securities Other comprehensive income (OCI) From Kern investment From trading securities Answers
Smith obtained following nformation related to the investments from Acme's ecember 31, Year , financial state • 20% ownership interest in Kern Co., represented by 200,000 shares of outstanding common stock purchased 7, for $600,000. . • Acquired debt securities from Wand Co., on January 2, Year 7, for $300,000 with the intent to hold them for a s time. • On January 2, Year 7, the carrying values of the acquired investments equaled their purchase price. • Kern reported earnings of $400,000 for the year ended December 31, Year 7, and declared and paid dividends during Year 7. • Acme received $52,000 in interest payments from Wand Co. during the year. • On December 31, Year 7. Kern's common stock was trading over-the counter at $18 per share. The fair value of from Wand was $360,000. • The investment in Kern is accounted for using the equity method and the debt securities are accounted for as Smith recalculated the amounts reported in Acme's December 31, Year 7, financial statements, and determined that t Stressing that the information available in the financial statements was limited, Smith advised Johnson that, assumin applied generally accepted accounting principles, Acme may have appropriately used two different methods to acco investments. Acme did not elect the fair value option regarding its financial instruments. Required: Complete the schedule indicating the amounts Acme should report for the two investments in its December 31, Year statement of income, and other comprehensive income. Ignore income taxes. (Leave no answer blank - enter O for have an amount to enter.) Carrying Value on Balance Sheet Kern investment on B/S Trading securities on B/S Income on Income Statement (I/S) From Kern investment From trading securities Other comprehensive income (OCI) From Kern investment From trading securities Answers
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Johnson, an investor in Acme Co., asked Smith, CPA for advice on the propriety of Acme's financial reporting for two of its investments.
Smith obtained the following information related to the investments from Acme's December 31, Year 7, financial statements:
• 20% ownership interest in Kern Co., represented by 200,000 shares of outstanding common stock purchased on January 2, Year
7, for $600,000.
• Acquired debt securities from Wand Co., on January 2, Year 7, for $300,000 with the intent to hold them for a short period of
time.
• On January 2, Year 7, the carrying values of the acquired investments equaled their purchase price.
• Kern reported earnings of $400,000 for the year ended December 31, Year 7, and declared and paid dividends of $100,000
during Year 7.
• Acme received $52,000 in interest payments from Wand Co. during the year.
• On December 31, Year 7, Kern's common stock was trading over-the counter at $18 per share. The fair value of the debt securities
from Wand was $360,000.
• The investment in Kern is accounted for using the equity method and the debt securities are accounted for as trading securities.
Smith recalculated the amounts reported in Acme's December 31, Year 7, financial statements, and determined that they were correct.
Stressing that the information available in the financial statements was limited, Smith advised Johnson that, assuming Acme properly
applied generally accepted accounting principles, Acme may have appropriately used two different methods to account for its
investments. Acme did not elect the fair value option regarding its financial instruments.
Required:
Complete the schedule indicating the amounts Acme should report for the two investments in its December 31, Year 7, balance sheet,
statement of income, and other comprehensive income. Ignore income taxes. (Leave no answer blank - enter O for cells that do not
have an amount to enter.)
Carrying Value on Balance Sheet
Kern investment on B/S
Trading securities on B/S
Income on Income Statement (I/S)
From Kern investment
From trading securities
Other comprehensive income (OCI)
From Kern investment
From trading securities
Answers
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