Assessing Financial Statement Effects of Equity Method Securities Use the financ

ID: 2553547 • Letter: A

Question

Assessing Financial Statement Effects of Equity Method Securities
Use the financial statement effects template to record the following transactions involving investments in marketable securities accounted for using the equity method.
a. Purchased 12,000 common shares of Bakersfield Co. at $10 per share; the shares represent 30% ownership in Bakersfield.
b. Received a cash dividend of $1.50 per common share from Bakersfield.
c. Bakersfield reported annual net income of $75,000.
d. Sold all 12,000 common shares of Bakersfield for $128,500.

Use negative signs with answers, if appropriate.

Balance Sheet Income Statement Noncash Contrib. Earned Transaction Cash Asset + Assets = Liabilities + Captial + Capital Revenues - Expenses = Net income a. Purchased shares of Bakersfield. Answer Answer Answer Answer Answer Answer Answer Answer b. Received cash dividend from Bakersfield. Answer Answer Answer Answer Answer Answer Answer Answer c. Bakersfield reported annual net income. Answer Answer Answer Answer Answer Answer Answer Answer d. Sold all Bakersfield shares. Answer Answer Answer Answer Answer Answer Answer Answer

Explanation / Answer

Solution:

Balance Sheet

Income Statement

Noncash

Contrib.

Earned

Transaction

Cash Asset

Assets

Liabilities

Capital

Revenues

Expenses

Net income

a. Purchased shares of Bakersfield.

-$ 120,000

$ 120,000

b. Received cash dividend from Bakersfield.

$ 18,000

$ 18000

c. Bakersfield reported annual net income.

$75,000

d. Sold all Bakersfield shares.

$128,500

$ -120,000

8500

Total

$ 101,500

$ 75,000