You are an auditor for Lane Collins Robinson, LLP. Orange Corporation, one of your clients, made four security investments during the year.
1. On January 1, 2015, Orange purchased a 35% interest in Canary, Inc. for $400,000. Canary's net income for the year was $1,000,000, and it paid Orange a dividend of $30,000 on December 28. At year end, Orange's Cceary sick was valued at 0500,000. Canary is not publicly traded.
2. On July 1, 2015, Orange purchased 5%, 10-year bonds of ABC, Inc. for the face value of $100,000. Orange received its first semiannual interest payment on December 31. The fair market value of the bonds on December 31 was $102,400. Similar to its previous bond investments, Orange intends to hold the ABC, Inc. bonds for the entire 10-year term.
3. On October 2, 2015, Orange purchased 500 shares of Brown Corporation, a publicly ceded company, for $80,000. On December 31, there were I billion shares outstanding, Brown's net income for the year was $10 billion, and it paid Orange a dividend of $1,000 on December 28. At year end, Orange's Brown stack was valued at $100,000. Orange does not plan to sell the stock for a short-term profit.
4. On December 27, 2015, Orange purchased 200 slimes of XYZ, Inc, a publicly traded company, for $120,000. On December 31, there were 500 million shares outstanding. XYZ's net income for the year was $200 million, and it paid Orange a dividend of $1,500 on December 31, The fair market value of Orange's XYZ, Inc. stock on December 31 was $116,000. Orange purchased XYZ stock with the intent of selling it for a short-term profit.
Hourmuch income or loss should Orange report for each investment on its ounce. year income statement? What amounts should Orange report on the balance sheet for its investments? Write a memo to .7he File" discussing the proper accounting treatment (ignore any tax effects and disclosure requirements). Assume the chest has not recorded any entries for these investments since the original purchase dates and record the necessary journal entries to update the client's records. The memo should be dated February 1, 2016.