Wish, Inc. acquires 10% of Fantasy Co. on January 1, 2020 for $96,000 and appropriately accounted for the investment using the fair value method.


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Screenshot 2024 01 13 133823

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Step 1 of 2

When a pharmaceutical business is creating a new product for the market, for instance intermediate accounting demonstrates how to manage the associated expenditures.

Explanation:

In general, investments do not guarantee appreciation; you can end up with less money than initially started.

Step 2 of 2

  1. Calculating investment:

 

Date Transaction Debit Credit Balance
January 1, 2020 Initial investment in Fantasy Co. $96,000 $96,000
January 1, 2021 Purchase of additional shares of Fantasy Co. $360,000 $456,000
January 1, 2021 Fair value adjustment to investment in Fantasy Co. $96,000 $552,000
December 31, 2021 Recognition of Wish’s share of Fantasy’s net income $80,500 $632,500
December 31, 2021 Recognition of Wish’s share of Fantasy’s dividends $14,000 $618,500
Year-End Balance $618,500

Working notes:

Calculating fair value of Wish’s investment in Fantasy at the beginning of 2021:
Wish’s ownership in Fantasy- 35%(10%+25%)

Fair value of Wish′s investment in Fantasy=35%×$1,440,000=$504,000.00

Equity in Investee Income account=35%×$230,000=$80,500.00

Year end balance=$96,000+$360,000+$96,000+$80,500−$14,000=$618,500

Explanation:

Investment is the practice of exchanging in one’s current income for an asset that will presumably yield profits in the future.

Final solution

  1. Investment in Fantasy at the end of 2021- $618,500

 

 

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