[sandy]

NINJA Question –

This is the problem,

On June 30, 20X0, MS Corporation purchased 10% of DP Corporation’s 25,000 shares of outstanding common stock. MS purchased the shares of DP at a three-month low of $22 per share. At the time of the purchase MS concluded that significant influence over DP was not achieved by the 10% ownership. MS decided to categorize the purchase of DP as Available for Sale. On January 1, 20X3, MS purchased an additional 20% of DP’s 25,000 shares of outstanding common stock for $28 per share. At this time MS will be able to exercise significant influence, therefore causing MS to switch from the fair value method (Available for Sale) to the equity method of accounting for the DP investment. DP reports net income and pays dividends on December 31 of each year. Information about DP for the years 20X0 through 20X2 is as follows:

Year Net Income Cash Dividends

20X0 $49,500 $11,000

20X1 $40,500 $9,000

20X2 $63,000 $14,000

Fair Market Values of DP Stock

6/30/X0 $22 per share

12/31/X0 $18 per share

12/31/X1 $26 per share

12/31/X2 $28 per share

1/1/X3 $28 per share

Can somebody help me with this problem? I am not sure how $15000 came?

1/1/X3 Unrealized holding gain/loss – OCI 15,000

Security fair value adjustment 15,000

Thanks!

[EuroAddict]

I *think* the $15,000 is from the inital 2500 shares purchased multiplied by the $6 increase in FV per share (from 22 to 28).

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[Author]

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