Bonnie Co. was a 30% owner of Clyde Corp., holding 210,000 shares of Clyde’s com
ID: 2555188 • Letter: B
Question
Bonnie Co. was a 30% owner of Clyde Corp., holding 210,000 shares of Clyde’s common stock on December 31, 2017. The investment account had the following entries:
On January 2, 2018, Bonnie sold 126,000 shares of Clyde for $3,440,000, thereby losing its significant influence. During the year 2018, Clyde experienced the following results of operations and paid the following dividends to Bonnie.
At December 31, 2018, the fair value of Clyde shares held by Bonnie is $375,000. This is the first reporting date since the January 2 sale.
We are the accountants for Bonnie Co. What are your recommendations for accounting for these transactions and the provided information?
Please use sources from the Accounting Standards Codification and use the numbers in the Codification that can be traced back to the source. Thank you
Investment in Clyde Corp. 1/1/16 Cost 3,180,000 12/6/16 Dividend 150,000 Received 390,000 12/5/17 Dividend 12/31/16 Share of Income 12/31/17 Share of Income 240,000 Received 510,000Explanation / Answer
Cost of Investment as on 31 st March, 2017 of 210000 shares
Investment = cost+share of income - dividend
= 3180000+390000+510000-150000-240000 = 36,90,000
Cost of Investment of 126000 shares
= (Investment value of 2100000 / no of shares held )* no of shares sold
= (3690000/210000)* 126000 = 22,14,000
Sale proceeds from 126000 shares = $ 34,40,000
Profit on sale of shares to be booked in p& l = 34,40,000 - 22,14,000 = 12,26,000
Dividend of $ 50400 to be transferred to profit & loss account
At 31 st December 2018
Investment value of 84000 shares in books of account = 3690000 - 2214000 = 14,76,000
Market value as on date = $3,75,000
Diff between cost & market value = 1476000 - 375000 = 11,01,000 (would be transfer to profit and loss or investment reserve account depending upon your country accounting standard)