Ewok Enterprises recently elected the fair value option to account for its investment in Yoda Inc. Ewok purchased the shares for $210,000 and the shares are currently trading for $195,000 at year-end. Record the journal entries needed to purchase the investment, then adjust it to fair value. Then, show how this investment will be reported on the balance sheet
What will be an ideal response?
Answer:
Journal Entries
Equity Investment in Yoda 210,000
Cash 210,000
Unrealized Loss on Equity Investment - Fair Value
Option (Net Income) 15,000
Fair Value Adjustment - Fair Value Option 15,000
Balance Sheet Presentation:
Equity Investment in Yoda $210,000
Less Fair Value Adjustment - Fair Value Option (15,000)
Equity Investment in Yoda - Fair Value $195,000
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