Problem - Financial Statement Effect of Equity Securities - Presented below are three unrelated situations involving equity securities.
Situation: A noncurrent portfolio with an aggregate fair value in excess of cost includes one particular security whose fair value has declined to less than one-half of the original cost. The decline in value is considered to be other than temporary.
Instructions - What is the effect upon carrying value and earnings for each of the situations above?
Problem - Investment Accounted for under the Equity Method - On July 1, 2015, Fontaine Company pur- chased for cash 40% of the outstanding capital stock of Knoblett Company. Both Fontaine Company and Knoblett Company have a December 31 year-end. Knoblett Company, whose common stock is actively traded in the over-the-counter market, reported its total net income for the year to Fontaine Company and also paid cash dividends on November 15, 2015, to Fontaine Company and its other stockholders.
Instructions - How should Fontaine Company report the above facts in its December 31, 2015, balance sheet and its income statement for the year then ended? Discuss the rationale for your answer.