Ashley Company
Ashley Company purchased 2,000 of the 10,000 outstanding shares of Judd, Inc.'s common stock for $60,000 on January 1, 2010. During 2010, Judd declared a dividend of $5 per share and reported net income of $75,000. At the end of 2010 the market value of a share of Judd, Inc. stock has increased to $32 per share.
If Ashley Company accounts for the investment as a minority, passive investment and classifies it as an available-for-sale security, then the investment will appear in the December 31, 2010 balance sheet at what amount?

Question

Quizplus · Accepted Answer

Since the investment is classified as an available-for-sale security, the initial investment of $60,000 will be recorded at cost. The market value of the investment at year-end is irrelevant in this case, since it is not a trading security. The $5 per share dividend income received by Ashley Company will be reported on the income statement as an unrealized gain or loss in accumulated other comprehensive income (AOCI) since the investment is classified as available-for-sale. Therefore, the December 31, 2010 balance sheet will show the investment at cost, which is $60,000.

Ashley Company Ashley Company Purchased 2,000 of the 10,000 Outstanding Shares of Shares