On January 1,2014,Jonathon Company purchased common stock in Garcia Company for $1,000,000.Jonathon Company treats the investment as trading securities.During 2014,Garcia Company earned $4,000,000 and paid dividends of $1,000,000.Assume that Jonathon Company owns 10% of the outstanding shares of Garcia Company.The market value of the investment at December 31,2014 is $1,100,000.What is the balance in the Investment account at December 31,2014?
A) $1,000,000
B) $1,100,000
C) $1,400,000
D) $1,500,000

Question

Quizplus · Accepted Answer

Since Jonathon Company treats the investment as trading securities, it must be reported at fair value, which is given as $1,100,000 at December 31,2014. The dividends earned by Jonathon Company during the year are not relevant since it's a trading security. Therefore, the balance in the Investment account at December 31, 2014, would be $1,100,000, which is the market value of the investment at that date.

On January 1,2014,Jonathon Company Purchased Common Stock in Garcia Company