On July 1,2016,Clearwater Inc.purchased 6,000 shares of the outstanding common stock of Mountain Corporation at a cost of $140,000.Mountain had 30,000 shares of outstanding common stock.The total book value and total fair value of Mountain's individual net assets on July 1,2016,are both $700,000.The total fair value of the 30,000 shares of Mountain's common stock on December 31,2016,is $760,000.Both companies have a January through December fiscal year.The following data pertains to Mountain Corporation during 2016:

Required:
(1. )Prepare the necessary entries for 2016 under the equity method (other than for the purchase).
(2. )Prepare any necessary entries for 2016 (other than for the purchase)that would be required if the securities are classified as available for sale.

Question

On July 1,2016,Clearwater Inc.purchased 6,000 shares of the outstanding common stock of Mountain Corporation at a cost of $140,000.Mountain had 30,000 shares of outstanding common stock.The total book value and total fair value of Mountain's individual net assets on July 1,2016,are both $700,000.The total fair value of the 30,000 shares of Mountain's common stock on December 31,2016,is $760,000.Both companies have a January through December fiscal year.The following data pertains to Mountain Corporation during 2016:

Required:
(1. )Prepare the necessary entries for 2016 under the equity method (other than for the purchase).
(2. )Prepare any necessary entries for 2016 (other than for the purchase)that would be required if the securities are classified as available for sale.

Quizplus · Accepted Answer

The Answer of On July 1,2016,Clearwater Inc.purchased 6,000 shares of the outstanding common stock of Mountain Corporation at a cost of $140,000.Mountain had 30,000 shares of outstanding common stock.The total book value and total fair value of Mountain's individual net assets on July 1,2016,are both $700,000.The total fair value of the 30,000 shares of Mountain's common stock on December 31,2016,is $760,000.Both companies have a January through December fiscal year.The following data pertains to Mountain Corporation during 2016:

Required:
(1. )Prepare the necessary entries for 2016 under the equity method (other than for the purchase).
(2. )Prepare any necessary entries for 2016 (other than for the purchase)that would be required if the securities are classified as available for sale.