Unrealized gain/loss on equity investments
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On January 2, 2017, Alpha Company purchased 10,000 shares of the stock of Zulu Company, and did not obtain significant influence. The investment is intended as a long-term investment. The stock was purchased for $10 per share, and represents a 12% ownership stake. Zulu Company made $25,000 of net income in 2017, and paid dividends of $11,000 on December 15, 2017. On December 31, 2017, Zulu Company's stock was trading on the open market for $9 per share at the end of the year. Use this information to determine the dollar amounts that should be reported by Alpha Company during 2017 for the following items: 1. Dividend Income 2. Unrealized Gain/Loss - OCI (If a loss, enter the amount with dollar sign inside of brackets) 3. Available-for-Sales Securities
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Solution Summary
The solution file shows the computation of dividend income, if any, to be accounted for and the calculation of unrealized gains/loss and investment account balance.
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Solution:
Since Alpha Company did not obtain significant influence as a result of only a 12% ownership stake, net income earned by Zulu Company will not affect the accounting of Alpha Company. Generally, a stake higher than 20% is assumed to have significant influence.
Assumption: Alpha Company accounts the purchase as AVAILABLE ...
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