Investments in Equity Securities
Response to the following problem:
Walker Company has an investment portfolio of equity securities available for sale. Walker does not own more than 5% of the outstanding voting stock for any of the securities in the portfolio. At the beginning of the year, the aggregate market value of the portfolio exceeded its cost. It received cash dividends on these securities during the year. It sold none of the securities in the portfolio during the year. At the end of the year, the aggregate cost of the portfolio exceeded its market value. The decline in the market price of the securities in the portfolio is attributable to general market decline.
During this year, Walker purchased for cash 35% of the outstanding voting stock of Sipe Company. It received cash dividends on this investment from Sipe during the year, and Sipe reported its earnings after the acquisition date to Walker.
Required
1. Explain how Walker reports on its balance sheet and income statement the effects of its investment portfolio of available-for-sale securities for the year.
2. Explain how Walker reports on its balance sheet and income statement the effects of its investment in Sipe for the year.