On July 1,2019,Surf Company purchased long-term investments in equity securities as follows: Blue Corporation common stock (par $5)2,000 shares at $16 per share.
Black Company preferred stock (par $20)1,500 shares at $30 per share.
The quoted market prices per share on December 31,2019 were as follows:
Blue Corporation stock,$15 per share
Black Company stock,$30 per share
Each of the long-term investments represents 10% of the total shares outstanding.The combined carrying value of the long-term investments reported in the balance sheet at December 31,2019 would be which of the following?

Question

Quizplus · Accepted Answer

The carrying value of the long-term investments is calculated based on the cost method since the investments represent less than 20% ownership. Blue Corporation stock: 2,000 shares x $16 = $32,000. Black Company stock: 1,500 shares x $30 = $45,000. Total carrying value = $32,000 + $45,000 = $77,000. However, since the market value of Blue Corporation stock decreased to $15, the carrying value should be adjusted for this decline: 2,000 shares x $15 = $30,000. Adjusted total carrying value = $30,000 + $45,000 = $75,000.

On July 1,2019,Surf Company Purchased Long-Term Investments in Equity Securities