Page 579 - Accounting Principles (A Business Perspective)

14. Stock investments

Demonstration problem
Demonstration problem A Following are selected transactions and other data for Kelly Company for 2010:
Mar. 21 Purchased 600 shares of Sly Company common stock at USD 48.75 per share, plus a USD 450 broker's

commission. Also purchased 100 shares of Rob Company common stock at USD 225 per share, plus a USD 376
broker's commission. Both investments are expected to be temporary.
June 2 Received cash dividends of USD 1.50 per share on the Sly common shares and USD 3 per share on the
Rob common shares.
Aug. 12 Received shares representing a 100 per cent stock dividend on the Rob shares.
30 Sold 100 shares of Rob common stock at USD 120 per share, less a USD 360 broker's commission.
Sept. 15 Received shares representing a 10 per cent stock dividend on the Sly common stock. Market price today

was USD 52.50 per share.
Dec. 31 Per share market values for the two investments in common stock are Sly, USD 45.75, and Rob, USD
106.50. Both investments are considered temporary.
Prepare journal entries to record these transactions and the necessary adjustments for a December 31 closing.
Demonstration problem B Lanford Company acquired all of the outstanding voting common stock of Casey
Company on 2010 January 2, for USD 300,000 cash. After the close of business on the date of acquisition, the
balance sheets for the two companies were as follows:
Landford Casey
Company Company
Assets
Cash $75,000 $30,000
Accounts receivable, net 90,000 37,700
Notes receivable 15,000 7,750
Merchandise inventory 112,500 45,000
Investment in Casey Company 300,000
Investment in bonds 30,000
Plant and equipment, net 303,000 195,000
Total assets $895,500 $345,000
Liabilities and stockholders' equity
Accounts payable $ 75,000 $ 45,000
Notes payable 22,500 15,000
Bonds payable 225,000
Common stock - $.50 par value 300,000 150,000
Paid-in capital excess of par value – common 60,000
Retained earnings 273,000 75,000
Total liabilities and stockholders' equity $895,500 $345,000
On 2010 January 2, Casey Company borrowed USD 15,000 from Lanford Company by giving a note. On that
same day, Casey Company purchased USD 30,000 of Lanford Company's bonds. The excess of cost over book value
is attributable to Casey Company's above-average earnings prospects.
Prepare a work sheet for a consolidated balance sheet on the date of acquisition.
Solution to demonstration problem A

2010
Mar. 21 Trading securities (+A) 52,576
Cash (-A) 52,576
To record purchase of 600 shares of Sly common stock for
$29,700 and 100 of Rob common stock for $22,876
June 2 Cash (+A) 1,200
Dividend revenue (+SE) 1,200
To record cash dividends: $900 Sly and $300 Rob.

Aug. 12 Received 100 shares of Rob common stock as a 100$ stock
dividend. The new cost per share is $22,876/200 shares =

580