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    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:

    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 ...

    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.

    $2.19