Valuing Investments

To be classified as an equity method security, the investor must typically own at least a certain percentage of the outstanding common stock of the investee.

What is that minimum percentage? That percentage of ownership represents the investor’s ability to do what?

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To acquire Peoples Corporation stock, J. Rich pays $62,000 in cash. What entry should be made for this investment?

To acquire Kinston Corporation stock, R. Neal pays $62,000 in cash, plus $1,200 broker’s fees. What entry should be made for this investment?

Tina Eddings is the controller of Mendez Inc.At December 31, the company’s investments in trading securities cost $74,000. They have a fair value of $70,000. Indicate how Tina would report these data in the financial statements prepared on December 31

The stockholders’ equity section of East Corporation’s balance sheet appeared as follows on December 31:Common stock, $10 par value, 80,000 sharesauthorized and issued ……….. $800,000Retained earnings ……….. 96,000Total stockholders’ equity ……… $896,000Danny Manufacturing Company owns 80 percent of East’s voting stock and paid $11.20 per share. Prepare the journal entry (including minority interest) to eliminate Danny’s investment and East’s stockholders’ equity that would appear on the work sheet used in preparing the consolidated balance sheet for the two firms

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