Oregon Exchange Company completed the following long-term investment transactions during 2010:
May 12 Purchased 17,500 shares, which make up 30% of the common stock of Woburn Corporation at total cost of $380,000.
Jul 9 Received annual cash dividend of $1.26 per share on the Woburn investment.
Sep 16 Purchased 900 share of Columbus, Inc., common stock as an available-for-sale investment, paying $41.00 per share.
Oct 30 Received cash dividend of $0.38 per share on the Columbus investment.
Dec 31 Received annual report from Woburn Corporation. Net income for the year was $580,000.
At year-end the fair market value of the Columbus stock is $30,000. The fair market value of the Woburn stock is $658,000.
1. For which investment is fair market value used in the accounting? Why is fair market value used for one investment and not the other?
2. Show what Oregon would report on its year-end balance sheet and income statement for these investment transactions. It is helpful to use a T-account for the Long-Term Investment in Woburn Stock account. Ignore income tax.
This question was answered on: Jul 11, 2017
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