Question

On January 1, 2018, Nana Company paid $100,000 for 6,300 shares of Papa Company common stock. The ownership in Papa Company is 10%. Nana Company does not have significant influence over Papa Company. Papa reported net income of $61,000 for the year ended December 31, 2018. The fair value of the Papa stock on that date was $64 per share. What amount will be reported in the balance sheet of Nana Company for the investment in Papa at December 31, 2018?

Answer 1

balance sheet:

investment in Papa 403,200

Step-by-step explanation:

base on the company's ownership percent, which does not have significan influence. We should recognize the difference as gain and adjust the valuation

market value:

6,300 x 64= 403,200

The net income is not relevant for this calculation,

we are just doing

investment in Papa 100,000 debit

cash 100,000 credit

at year end we adjust

investment in Papa 303,200 debit

gain in investment 303,200 credit