(Solved): PLEASE SOLVE THE WHOLE REQUIRED PART, THANKS IN ADVANCE. Surge Corporation had outstanding 120,000 ...
PLEASE SOLVE THE WHOLE REQUIRED PART, THANKS IN ADVANCE.
Surge Corporation had outstanding 120,000 shares of no-par common stock. On January 10 of the current year, Crash Company purchased a block of Surge Company’s shares in the open market at $25 per share for long-term investment purposes. At the end of the current year, Surge reported net income of $175,000 and cash dividends of $1.00 per share. At December 31 of the current year, Surge stock was selling at $27 per share.
Required:
1. For both of the following cases (Case A and Case B, shown in the tabulation), identify the method of accounting that Crash Company should use. Explain why.
Case A: 15,000 Shares Purchased
Case B: 48,000 Shares Purchased
2. Give the journal entries for Crash Company at the dates indicated for each of the two independent cases (Case A and Case B), assuming that the investments will be held long-term. Use the following format:
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a. To record the acquisition on January 10. |
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b. TorecognizetheincomereportedbySurgeCorporationforthe current year. |
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c. To recognize the dividends declared and then paid by Surge Corporation (two entries). |
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d. To recognize the fair value effect at the end of the current year. |
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3. Complete the following schedule to show the separate amounts that should be reported on the current year’s financial statements of Crash Company:
Expert Answer
Required 1: The method of accounting that Crash Company should use: Crash Company should use the method of accounting as follows: Case A: Since 15,000