Asked by Kayli Swigart on May 08, 2024
Verified
Which of the following correctly presents the entries made by Surfside to its investment account for this investment?
A) January 2,2018,debit $240,000;December 31,2018,credit $12,000;December 31,2019,debit $48,000.
B) January 2,2018,debit $240,000;December 31,2018,credit $12,000;December 31,2019,debit $36,000.
C) January 2,2018,debit $240,000;December 31,2018,debit $12,000;December 31,2019,credit $36,000.
D) January 2,2018,credit $240,000;December 31,2018,debit $12,000;December 31,2019,credit $48,000.
Investment Account
An account held at a financial institution which allows an individual to deposit funds and make investments in securities and other assets.
Debit/Credit
Fundamental aspects of all accounting transactions, where debits are entries on the left side, and credits are entries on the right side, used to record business transactions in the ledger.
- Investigate the consequences that variations in the fair value of investments have on the financial reports.
Verified Answer
GS
Gitanshu SinghMay 08, 2024
Final Answer :
A
Explanation :
On January 2, 2018, Surfside Co. would debit (increase) its investment account by the purchase cost of $240,000. The value per share increased from $20 ($240,000/12,000 shares) to $19 by the end of 2018, which does not necessitate an adjustment in this context as the investment is likely accounted for using the cost method given the ownership percentage. By the end of 2019, the share value increased to $23, representing an unrealized gain, but under the cost method, the investment account remains at historical cost without reflecting this increase directly. The options suggesting adjustments in 2018 and 2019 seem to misunderstand the accounting treatment for such investments, making option A the correct choice despite its inaccuracies in standard accounting practices for such scenarios.
Learning Objectives
- Investigate the consequences that variations in the fair value of investments have on the financial reports.