In which investment category are fair values and subsequent growth of an investee not relevant for reporting?
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In 2022, Osgood Corporation purchased $7.1 million worth of 10-year municipal bonds at face value. On December 31, 2024, the bonds had a fair value of $3,700,000 and Osgood reclassified the bonds from held-to-maturity to trading securities. Osgood’s December 31, 2024, balance sheet and the 2024 income statement would show the following:
| Investment in bonds (TS) | Income statement loss on investments | |
| a. | $ 3,700,000 | $ 0 |
| b. | $ 3,700,000 | $ 3,400,000 |
| c. | $ 7,100,000 | $ 3,400,000 |
| d. | $ 7,100,000 | $ 0 |
The income statement reports changes in fair value for which type of investment securities?
Assume that, on January 1, 2024, Sosa Enterprises paid $2,320,000 for its investment in 33,000 shares of Orioles Company. Further, assume that Orioles has 110,000 total shares of stock issued and estimates an eight-year remaining useful life and straight-line depreciation with no residual value for its depreciable assets.
At January 1, 2024, the book value of Orioles’ identifiable net assets was $7,340,000, and the fair value of Orioles was $10,000,000. The difference between Orioles’ fair value and the book value of its identifiable net assets is attributable to $1,850,000 of land and the remainder to depreciable assets. Goodwill was not part of this transaction.
The following information pertains to Orioles during 2024:
| Net income | $ 400,000 | |
| Dividends declared and paid | $ 240,000 | |
| Market price of common stock on 12/31/2024 | $ 80 | per share |
What amount would Sosa Enterprises report in its year-end 2024 balance sheet for its investment in Orioles Company?
Fredo, Incorporated, purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2024. Sonny recognized a total of $470,000 net income during 2024, paid $37,000 of dividends to Fredo during 2024, and at December 31, 2024, the market value of the Sonny investment increased to $1,047,000.
Required:
Prepare the journal entries necessary to account for the Sonny investment, assuming that Fredo (1) does not have significant influence or (2) does have significant influence over the operating and financial policies of the investee.