Question

On January 1, Year 1, Justo purchases 30,000 shares of the 100,000 outstanding shares of stock in Bonita Corp. for $5 per share. During the year, Bonita Corporation has $20,000 of net income and pays $4,000 in dividends. On December 31, Year 1, the value of a share of Bonita Corporation stock is $6 per share. Assuming Justo elects the fair value option to account for its investment in Bonita, what is the amount recorded as Investment in Bonita on the December 31, Year 1, balance sheet

Answer 1

$180,000

Step-by-step explanation:

The computation of the amount recorded as investment on the Dec 31, year 1 as follows

As the investment should be recorded at the fair value i.e.

= 30,000 shares × $6

= $180,000

Plus the amount of $30,000 that represent the unrealized gain would be recorded as the earnings for the given period