Question

On January ​1, 2018​, Wallace​, Inc. decides to invest in 7,200 shares of Dressage stock when the stock is selling for $ 20 per share. On June ​1, 2018​, Dressage paid a $ 1.00 per share cash dividend to stockholders. On December​ 31, 2018​, Dressage reports net income of $ 80,000 for 2018. Assume Dressage has 18,000 shares of voting stock outstanding during 2018 and Wallace has significant influence over Dressage.

1. Identify what type of investment the Dressage stock is for Wallace.
2. Journalize the transactions related to Wallace's investment in the Dressage stock during 2018.
3. In what category and at what value would Wallace's report the investment on the December​ 31, 2018​, balance​ sheet?
REQUIREMENT 1:
Wallace​'s investment would be ________ investment.
a. a controlling interest
b. a held-to-maturity
c. a no significant influence
d. a significant influence
e. an available-for-sale
REQUIREMENT 2:
1) January ​1:Wallace Inc. decides to invest in 7,200 shares of Dressage stock when the stock is selling for $20 per share.
Debit Credit
2) June ​1: Dressage paid a $1.00 per share cash dividend to stockholders
Debit Credit
3) December​ 31: Dressage reports net income of $80,000 for 2018.
Debit Credit
REQUIREMENT 3:
In what category and at what value would Wallace​'s report the investment on the December​ 31, 2018 balance​ sheet?
Wallace would report a ___________ ( long term assets, long term liability, short term asset, short term liability) of $ _____________on the December 31 2018 balance sheet

Answer 1

Wallace's investment in Dressage stock represents significant influence and would be reported as a long-term asset of $144,000 on the December 31, 2018 balance sheet.

Step-by-step explanation:

REQUIREMENT 1:
Wallace's investment would be d. a significant influence investment.

REQUIREMENT 2:
1) January 1: Wallace Inc. decides to invest in 7,200 shares of Dressage stock when the stock is selling for $20 per share.
Debit: Investment in Dressage stock - $144,000
Credit: Cash - $144,000

2) June 1: Dressage paid a $1.00 per share cash dividend to stockholders.
Debit: Cash - $7,200
Credit: Dividend Income - $7,200

3) December 31: Dressage reports net income of $80,000 for 2018.
Debit: Investment in Dressage Stock - $80,000
Credit: Equity Income - $80,000

REQUIREMENT 3:
Wallace would report a long-term asset of $144,000 on the December 31, 2018 balance sheet.

Answer 2

REQUIREMENT 1:

Wallace​'s investment would be ________ investment.

• d. a significant influence

Wallace owns 40% of Dressage's stocks.

REQUIREMENT 2:

1) January ​1:Wallace Inc. decides to invest in 7,200 shares of Dressage stock when the stock is selling for $20 per share.

Dr Investment in Dressage, Inc. 144,000

Cr Cash 144,000

2) June ​1: Dressage paid a $1.00 per share cash dividend to stockholders

Dr Cash 7,200

Cr Investment in Dressage, Inc. 7,200

3) December​ 31: Dressage reports net income of $80,000 for 2018.

Dr Investment in Dressage, Inc. 32,000

Cr Investment revenue 32,000

REQUIREMENT 3:

In what category and at what value would Wallace​'s report the investment on the December​ 31, 2018 balance​ sheet?

Wallace would report a LONG TERM ASSET of $168,800 on the December 31 2018 balance sheet