Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 12 Special Income and Investment Reporting Issues 565

The temporary investments of Secure Connections, Inc., include only 10,000 shares of Lambert

Acres, Inc., common stock purchased on January 10, 2006, for $20 per share. As of the December

31, 2006, balance sheet date, assume that the share price declined to $17 per share. As of the

December 31, 2007, balance sheet date, assume that the share price rose to $27 per share. The in-

vestment was held through December 31, 2007. Assume a tax rate of 40%.

a. Determine the net after-tax unrealized gain or loss from holding the Lambert Acres com-

mon stock for 2006 and 2007.

b. What is the balance of Accumulated Other Comprehensive Income or Loss for December

31, 2006, and December 31, 2007?

c. Where is Accumulated Other Comprehensive Income or Loss disclosed on the financial

statements?

During 2006, its first year of operations, Lyon Research Corporation purchased the following se-

curities as a temporary investment:

Shares Cash Dividends

Security Purchased Cost Received

M-Labs, Inc. 1,000 $29,000 $ 900

Spectrum Corp. 2,500 45,000 1,600

a. Record the purchase of the temporary investments for cash.

b. Record the receipt of the dividends.

Using the data for Lyon Research Corporation in Exercise 12-17, assume that as of December 31,

2006, the M-Labs, Inc., stock had a market value of $28 per share and the Spectrum Corp. stock

had a market value of $14 per share. For the year ending December 31, 2006, Lyon Research

Corporation had net income of $80,000. Its tax rate is 40%.

a. Prepare the balance sheet presentation for the temporary investments.

b. Prepare a statement of comprehensive income presentation for the temporary

investments.

On February 27, Ball Corporation acquired 3,000 shares of the 50,000 outstanding shares of

Beach Co. common stock at 40.75 plus commission charges of $150. On July 8, a cash dividend

of $1.50 per share and a 2% stock dividend were received. On December 7, 1,000 shares were

sold at 49, less commission charges of $60. Prepare the entries to record (a) the purchase of the

stock, (b) the receipt of dividends, and (c) the sale of the 1,000 shares.

At a total cost of $1,820,000, Joshua Corporation acquired 70,000 shares of Caleb Corp. common

stock as a long-term investment. Joshua Corporation uses the equity method of accounting for

this investment. Caleb Corp. has 280,000 shares of common stock outstanding, including the

shares acquired by Joshua Corporation. Journalize the entries by Joshua Corporation to record

the following information:

a. Caleb Corp. reports net income of $2,500,000 for the current period.

b. A cash dividend of $3.40 per common share is paid by Caleb Corp. during the current

period.

Exercise 12-16

Temporary investments and
other comprehensive income

Goal 3
a. 2007 unrealized gain,
$60,000

Exercise 12-17

Temporary investments in
marketable securities

Goal 3

Exercise 12-18

Financial statement reporting
of temporary investments

Goal 3

b. Comprehensive income,
$73,400

Exercise 12-19

Entries for investment in stock,
receipt of dividends, and sale
of shares

Goal 3

Exercise 12-20

Entries using equity method
for stock investment

Goal 3