On July 1, 2009, 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 book value and fair value of Mountain's net assets on July 1, 2009 equals the total price of the 30,000 outstanding shares: $700,000. The total price of the 30,000 shares of Mountain's common stock on December 31, 2009 is $760,000. Both companies have a January through December fiscal year. The following data pertain to Mountain Corporation during 2009:
Required:
(1.) Prepare the necessary entries for 2009 under the equity method (other than for the purchase).
(2.) Prepare any necessary entries for 2009 (other than for the purchase) that would be required if the securities are classified as available for sale.
$\begin{array}{ll}
\text { Net income, January } 1 \text { - June } 30 & \$ 14,000 \
\text { Net income, July 1 - December 31 } & \$ 18,000 \
\text { Dividends declared and paid, Jan. 1 - Jun .30 } & \$ 12,000 \
\text { Dividends declared and paid, Jul 1 - Dec. 31 } & \$ 12,000
\end{array}$

Question

On July 1, 2009, 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 book value and fair value of Mountain's net assets on July 1, 2009 equals the total price of the 30,000 outstanding shares: $700,000. The total price of the 30,000 shares of Mountain's common stock on December 31, 2009 is $760,000. Both companies have a January through December fiscal year. The following data pertain to Mountain Corporation during 2009:
Required:
(1.) Prepare the necessary entries for 2009 under the equity method (other than for the purchase).
(2.) Prepare any necessary entries for 2009 (other than for the purchase) that would be required if the securities are classified as available for sale.
 $\begin{array}{ll}
\text { Net income, January } 1 \text { - June } 30 & \$ 14,000 \
\text { Net income, July 1 - December 31 } & \$ 18,000 \
\text { Dividends declared and paid, Jan. 1 - Jun .30 } & \$ 12,000 \
\text { Dividends declared and paid, Jul 1 - Dec. 31 } & \$ 12,000
\end{array}$

Quizplus · Accepted Answer

The Answer of On July 1, 2009, 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 book value and fair value of Mountain's net assets on July 1, 2009 equals the total price of the 30,000 outstanding shares: $700,000. The total price of the 30,000 shares of Mountain's common stock on December 31, 2009 is $760,000. Both companies have a January through December fiscal year. The following data pertain to Mountain Corporation during 2009:
Required:
(1.) Prepare the necessary entries for 2009 under the equity method (other than for the purchase).
(2.) Prepare any necessary entries for 2009 (other than for the purchase) that would be required if the securities are classified as available for sale.
 $\begin{array}{ll}
\text { Net income, January } 1 \text { - June } 30 & \$ 14,000 \
\text { Net income, July 1 - December 31 } & \$ 18,000 \
\text { Dividends declared and paid, Jan. 1 - Jun .30 } & \$ 12,000 \
\text { Dividends declared and paid, Jul 1 - Dec. 31 } & \$ 12,000
\end{array}$