On January 1,2012,Gilman Company purchased 10,000 of the 200,000 shares of common stock of Burke Corporation at $40 per share as a long-term investment.The records of Burke Corporation showed the following at December 31,2012:
$$\begin{array} { | l | l | }
\hline \text { Net Income } & \$ 500,000 \
\hline \text { Dividends Paid } & \$ 200,000 \
\hline \text { Market Price per Share } & \$ 38 \
\hline
\end{array}$$
What amount should Gilman Company report in its December 31,2012,balance sheet for its investment in Burke?

Question

On January 1,2012,Gilman Company purchased 10,000 of the 200,000 shares of common stock of Burke Corporation at $40 per share as a long-term investment.The records of Burke Corporation showed the following at December 31,2012: 
$$\begin{array} { | l | l | } 
\hline \text { Net Income } & \$ 500,000 \
\hline \text { Dividends Paid } & \$ 200,000 \
\hline \text { Market Price per Share } & \$ 38 \
\hline
\end{array}$$
What amount should Gilman Company report in its December 31,2012,balance sheet for its investment in Burke?

Quizplus · Accepted Answer

Gilman Company should report $380,000 in its December 31, 2012, balance sheet for its investment in Burke. This is because Gilman Company uses the fair value method to account for its investment in Burke, and the fair value of the investment is equal to the market price per share multiplied by the number of shares owned. As of December 31, 2012, the market price per share of Burke Corporation's common stock is $38, and Gilman Company owns 10,000 shares. Therefore, the fair value of Gilman Company's investment in Burke is $380,000.

On January 1,2012,Gilman Company Purchased 10,000 of the 200,000 Shares