Golden Company purchases equity securities in Leash Products, Inc. at a purchase price of $500,000, representing 15% of the book value of Leash Products. During the year, Leash Products reports a net income of $150,000 and pays cash dividends of $40,000. The market value of Golden's investment at the end of the year is $600,000.
Required
a. At what amount is the investment account reported at the end of the year if the securities are classified as trading securities?
b. How would market value changes be treated if the marketable securities are classified as available-for-sale investments?
c. How would market value changes be treated if the marketable securities are classified as trading investments?
d. How are dividends and gains/losses on security sales treated for trading securities and for available-for-sale securities?

Question

Golden Company purchases equity securities in Leash Products, Inc. at a purchase price of $500,000, representing 15% of the book value of Leash Products. During the year, Leash Products reports a net income of $150,000 and pays cash dividends of $40,000. The market value of Golden's investment at the end of the year is $600,000. 
Required
a. At what amount is the investment account reported at the end of the year if the securities are classified as trading securities?
b. How would market value changes be treated if the marketable securities are classified as available-for-sale investments?
c. How would market value changes be treated if the marketable securities are classified as trading investments?
d. How are dividends and gains/losses on security sales treated for trading securities and for available-for-sale securities?

Quizplus · Accepted Answer

The Answer of Golden Company purchases equity securities in Leash Products, Inc. at a purchase price of $500,000, representing 15% of the book value of Leash Products. During the year, Leash Products reports a net income of $150,000 and pays cash dividends of $40,000. The market value of Golden's investment at the end of the year is $600,000. 
Required
a. At what amount is the investment account reported at the end of the year if the securities are classified as trading securities?
b. How would market value changes be treated if the marketable securities are classified as available-for-sale investments?
c. How would market value changes be treated if the marketable securities are classified as trading investments?
d. How are dividends and gains/losses on security sales treated for trading securities and for available-for-sale securities?

Golden Company Purchases Equity Securities in Leash Products, Inc