Problem: On March 31, 2005, Clique Corporation purchases 250,000 shares of Carborundum Company's common stock for $67 per share. The 250,000 shares represent 16% of Carborundum's outstanding shares. On June 30, 2005, the market price of Carborundum's stock was $45 share.
For the year ended, June 30, 2005, Carborundum's reported a net loss of $925,000; however, it paid total cash dividends in May, 2005 of $300,000.
Q1. Compute the carrying amount of Clique's investment in Carborundum as of June 30, 2005 assuming that Clique accounts for its investment in Carborundum as each of the following:
(a) Trading Security
(b) Available for Sale Investment
(c) Equity Investment (assume a significant position exists because of some options that Clique has to acquire more shares of Carborundum and that Clique can account in this manner or in the manner set forth in any of the other alternatives shown)
Q2. Compute the investment income reported by Clique for the 2005 fiscal year, assuming that Clique accounts for its investment in Carborundum as each of the following:
(a) Trading Security
(b) Available for Sale Investment
(c) Equity Investment