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

Where is the unrealized holding gain or loss associated with the Josh stock reported?

Short answer

Answer

The equity section of the balance sheet will report the unrealized holding gains on the equity security.

Step-by-step solution

Definition of Fair Value

The price of any asset established by the willingness of both buyer and seller is known as fair value. Marketable securities are reported in thebalance sheet at their fair value only.

Reporting Unrealized Holding gains

Unrealized holding gains will be reported in the equity section of the balance sheet because they are added to the net income calculation.