On January 1, 2011, Young Co. paid $500,000 for 20,000 shares of Montana Co.'s common stock and classified these shares as trading securities. Young does not have the ability to exercise significant influence over Montana. Montana declared and paid a dividend of $.50 a share to its stockholders during 2011. Montana reported net income of $260,000 for the year ended December 31, 2011. The fair value of Montana Co.'s stock at December 31, 2011, is $27 per share. What is the net asset amount (which includes both investments and any related market adjustments) attributable to the investment in Montana that will be included on Young's balance sheet at December 31, 2011?

Question

Quizplus · Accepted Answer

The net asset amount is calculated as the fair value of the investment at year-end. Young Co. owns 20,000 shares, and the fair value per share is $27, so the investment is valued at 20,000 x $27 = $540,000. Dividends and Montana's net income do not affect the carrying amount of trading securities on the balance sheet.