Ember Corp. purchases 20,000 shares (15%) of Stanton Industries at a price of $31/share and pays legal fees of $35,000 for the acquisition. The investment in Stanton is classified as an available for sale security, as Ember does not exercise significant influence. Stanton shows the following numbers for Year 1:
• Dividends paid (cash): $430,000
• Retained earnings at Declaration Date: $395,000
• Stock ends the year with a market value of $35 per share
Ember adjusts the Investment asset account for changes in the fair values of its trading and available for sale securities.
The initial acquisition journal entry will be:
Dr: Investment in Stanton – $655,000
Cr: Cash – $655,000
(21,000 shares x $31= $620,000 + Legal Costs of $35,000 = $655,000)
I thought fees incurred during acquisition, besides equity/debt issuance costs, were expensed and not capitalized to investment account. Are there different rules for acquisition costs for different types of investments?
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