Question

On January 1, 2013, Nana Company paid $100,000 for 8,000 shares of Papa Company common stock. These securities were classified as trading securities. The ownership in Papa Company is 10%. Papa reported net income of $52,000 for the year ended December 31, 2013. The fair value of the Papa stock on that date was $45 per share. What amount will be reported in the balance sheet of Nana Company for the investment in Papa at December 31, 2013

Answer 1

The balance sheet amount for Nana Company's investment in Papa Company would be the fair value of the stock at the end of the year, which is 8,000 shares multiplied by $45 per share, totaling $360,000.

Step-by-step explanation:

The amount reported on Nana Company's balance sheet for the investment in Papa at December 31, 2013, would be based on the fair value of the Papa stock on that date. As Nana Company has classified these securities as trading securities, changes in fair value are recognized in earnings and therefore the balance sheet reflects the fair value at the reporting date.

To calculate this value: 8,000 shares × $45 per share = $360,000. This is the amount that will appear on the balance sheet for Nana Company's investment in Papa Company at year-end, given that it is higher than the initial cost of $100,000 and reflects the fair value of the trading securities.