Presented below is information related to the purchases of common stock by Flint Company during 2020. Cost (at purchase date) Fa
ir Value (at December 31) Investment in Arroyo Company stock $92,000 $73,000 Investment in Lee Corporation stock 267,000 313,000 Investment in Woods Inc. stock 163,000 172,000 Total $522,000 $558,000. (a) What entry would Vaughn make at December 31, 2017, to record the investment in Arroyo Company stock if it chooses to report this security using the fair value option?(b) What entry would Vaughn make at December 31, 2017, to record the investments in the Lee and Woods corporations, assuming that Vaughn did not select the fair value option for these investments?
1 answer:
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Answer:
$180
Explanation:
Expected return E(r) =
D1= Next year's dividend
P1 = Next year's price
P0 = Current price
Since the beta is 1, it means this stock's return = market return = 20%
E(r) =
0.20 =
Multiply both sides by 155
31 = P1-149
Add 149 on both side s to solve for P1;
31+149 = P1
180 = P1
Therefore, the stock will sell at $180