Question

Kelvie Inc. is a manufacturing company and held the following investments during 2012. Show how each investment would impact/change Kelvie’s 2012 year-end financial statements using the template provided on Blackboard. Indicate the type of activity for each line reported on the Statement of Cash Flows.Kelvie Inc. purchased Mao & Co.’s 5-year, 5%, $100,000 bond. The bond was purchased on January 1, 2012 for $95,788 to yield 6% interest. The bond pays annual interest on December 31. Kelvie intends to hold the bond to maturity. At December 31, 2012, the bond had a fair market value of $96,500.Kelvie Inc. purchased 6,000 shares of Dalton Ltd. common stock at a cost of $255,000 on July 31, 2012. These shares do not give Kelvie significant influence over Dalton. On October 31, 2012, Dalton Ltd. paid a $2 per share cash dividend. At December 31, 2012, Dalton Ltd. was trading at $40 a share.On January 1, 2012, Kelvie Inc. invested in ASP Industries by acquiring 30% of ASP’s outstanding stock for $21,500,000. During 2012, ASP Industries reported net income of $5,000,000 and paid cash dividends totaling $1,000,000. At December 31, 2012, ASP Industries had a market value of $75,000,000. Note: Ignore any excess price issues.

Answer 1

Answer:

Explanation:

     Investments               Impact in                                 Type of activity

                                                  financial statement

1 Purchase of Mao &Co's          Increase the investments       Investing

bond of $ 100,000                    in Balance sheet           activity

Cost of bond $ 95788           Debit to the investments

                                                  account $ 95,788  

Annual interest on                    Credit to the income account  

  Bond of $ 5000                      - interest income  

No impact of fair market value

in financial statement

 

2 Purchase of 6000             Debit $ 255,000 to the        Investing activity

shares of Dalton ltd            investment account

Receipt of dividend             Credit $ 12,000 to the

                                                   dividend income account  

3 Acquisition of 30%               Debit $ 21,500,000 to the     Investing activity

ASP's outstanding stock  investment account

Receipt of dividend           Credit $ 1,000,000 to the

                                                 dividend income account