Lindorf Company often purchases common stocks of other com
Question and Solution
Lindorf Company often purchases common stocks of other companies as long-term investments. At the end of 2011, Lindorf held the common stocks listed. (Assume that Lindorf exercises no significant influence over these companies; that is, they are classified as available-for-sale securities.)
Additional information for 2011: Sept. 30 Lindorf received a cash dividend of $1.15 per share on Dewey Corporation stock. Dec. 31 The market prices were quoted as follows: Dewey stock, $35 Oblinger stock, $28; Litten stock, $154; Kauff man stock, $70. Required: 1. Illustrate how these investments would be reported on the balance sheet at December 31, 2011, and prepare the adjusting entry at that date. 2. What items and amounts would be reported on the income statement for 2011? 3. Prepare the journal entry for the sale of Kauff man stock for $71 per share in 2012. 4. Interpretive Question: Why are losses from the write-down of available-for-sale securities not included in the current year’s income, whereas similar losses for trading securities areincluded?