Question

Question: P10-23B Accounting for equity investments

The beginning balance sheet of Text Source Co. included a \(700,000 investment in Taylor stock (20% ownership).

During the year, Text Source completed the following investment transactions:

Mar. 3 Purchased 5,000 shares at \)13 per share of Josh Software common stock as a long-term equity investment, representing 3% ownership, no significant influence.

May 15 Received a cash dividend of \(0.69 per share on the Josh investment.

Dec. 15 Received a cash dividend of \)100,000 from Taylor investment.

31 Received Taylor’s annual report showing \(100,000 of net income.

31 Received Josh’s annual report showing \)620,000 of net income for the year.

31 Taylor’s stock fair value at year-end was \(620,000.

31 Josh’s common stock fair value at year-end was \)14 per share.

Requirements

Prepare Text Source’s partial balance sheet at December 31, 2018, from your answers in Requirement 2.

Short answer

Answer

Particular	Amount $	Amount $
Assets:
Long-Term asset
Equity investment – Taylor equity		$700,000
Equity investment – Josh Equity	$65,000
Add: unrealized holding gains	5,000	$70,000
Net long-term investment		$770,000
Shareholder’s equity
Retained earnings/Unrealized holding gains		$5,000

Step-by-step solution

Definition of Unrealized Gains

The profit/gain on the paper or financial statement due to an increase in the market value of the assets that are not sold yet is known as unrealized gains.

Partial Balance Sheet

1. Investment in both the equities will be reported in the asset section as a long-term investment because the company does not intend to sell these securities.
2. The increase in the value of the equity of Josh will be included in the net income and, therefore, reported in the shareholder’s equity section.