Brinkley Company, which began operations on January 3, 2013, had the following subsequent transactions and events in its long term investments.
2013 Jan. 5 Brinkley purchased 20,000 shares (25% of total) of Bloch's common stock for $ 200,500.
Aug. 1 Bloch declared and paid a cash dividend of $ 1.05 per share. Dec. 31 Bloch's net income for 2013 is $ 82,000, and the fair value of its stock is $ 11.90 per share.
2014 Aug. 1 Bloch declared and paid a cash dividend of $ 1.35 per share.
Dec. 31 Bloch's net income for 2014 is $ 78,000, and the fair value of its stock is $ 13.65 per share.
2015 Jan. 8 Brinkley sold all of its investment in Bloch for $ 375,000 cash.
Part 1
Assume that Brinkley has a significant influence over Bloch with its 25% share.
Required:
1. Prepare journal entries to record these transactions and events for Brinkley.
2. Compute the carrying (book) value per share of Brinkley's investment in Bloch common stock as reflected in the investment account on January 7, 2015.
3. Compute the net increase or decrease in Brinkley's equity from January 5, 2013, through January 8, 2015, resulting from its investment in Bloch.
Part 2
Assume that although Brinkley owns 25% of Bloch's outstanding stock, circumstances indicate that it does not have a significant influence over the investee and that it is classified as an available for sale security investment.
Required:
1. Prepare journal entries to record these transactions and events for Brinkley. Also prepare an entry dated January 8, 2015, to remove any balance related to the fair value adjustment.
2. Compute the cost per share of Brinkley's investment in Bloch common stock as reflected in the investment account on January 7, 2015.
3. Compute the net increase or decrease in Brinkley's equity from January 5, 2013, through January 8, 2015, resulting from its investment in Bloch.