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Balance Sheet Classification of Investment with Entries

On January 2, 2011, Sanborn Tobacco, Inc. bought 55 OF Jackson Industry's capital stock for $90 million as a temporary investment. Sanborn realized that these securities normally would be classified as available-for-sale but elected the fair value option to account for the investment. Jackson' Industry's net income for the year ended December 31, 2011. During 2011, Jackson declared a dividend of $60 million.

1. Would this investment be classified on Sanborn's balance sheet as held-to-maturity securities, trading securities, available-for-sale, significant influences investments or other. Explain
2. Prepare all appropriate journal entries related to investment during 2011
3. Indicate the effect of this investment on 2011 income before taxes.

In early December of 2011, Kettle Corp purchased $50,000 of Icale Company common stock, which constitutes less than 1% of Icale's outstanding shares. By December 31, 2011 the value of Icale's investment had fallen to $40,000 and Kettle recorded an unrealized loss. By December 31, 2012 the value of Icale's investment had fallen $25,000 and Kettle determined that it can no longer assert that it has both the intent and ability to hold the shares long enough for their fair value to recover, so they recorded an OTT impairment. By December 31, 2013, fair value recovered to $30,000.
1. Prepare appropriate entry(s) at December 31, 2011, 2012 and 2013 and for each year indicate how the scenario will affect net income, OCI and comprehensive income.

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NOTE: There was no figure given for the net income

1. How an investment should be classified in the investor's balance sheet would depend on the intention of the investor - would they sell in the immediate future or are they intending to hold the investment until maturity? Given the information in the case, specifically that Sanbom tobacco expects the ...

Solution Summary

The solution answers two multi-part questions on journal entry preparation.