Exercise 1

On 12/31/13 Kevin Corp. held no investment securities. On 1/01/14 Kevin purchased 2,000 shares of Detsch Corp. stock for $20/share and continued to hold the Detsch stock until 10/09/16 when it was sold for $22/share (ignore transaction costs). On 11/20/14, and on 11/19/15 Kevin receives a dividend of $1/share on the Detsch stock. The market value of Detsch stock was $19/share on 12/31/14 and $18/share on 12/31/15. Required: Provide all investment related entries in accounting equation format assuming that Kevin classifies the Detsch Corp. stock investment as “Available for Sale.” 

Exercise 2

On 1/01/14 Chandler Corp. purchased 100% of the stock of Hosterman Corp. (80,000 shares) for $4,800,000. Hosterman continues to operate as a separate legal corporation. Hosterman presented the following condensed year-end balance sheet at 12/31/2013 (in 1,000’s):

Assets:                                              Liabilities & Stockholders’ Equity:

Cash                $  300                          Accounts Payable            $  100

Inventory              1,000                         Long-term Debt                 200    $ 300

Operating Assets (net)       3,000                          Paid-In Capital                2,000

                                                    Retained Earnings             2,000     4,000

Total Assets           $4,300                          Total Liabilities & Stockholders’ Equity  $  4,300

All assets and liabilities of Hosterman had fair values equal to their book values at 1/1/14 except for equipment that was undervalued by $ 400,000 (fair value=$800,000 and its book value=$400,000) with a remaining life of 8 years. 

Immediately after the acquisition, Chandler provided the following balance sheet (in 1,000’s):

Assets:                                            Liabilities & Stockholders’ Equity:

Cash               $ 1,000                         Accounts Payable           $1,400

Inventory             7,000                         Long-term Debt               4,000  $ 5,400

Operating Assets (net)    8,600                         Paid-In Capital               4,000

Investment in Hosterman                4,800                  Retained Earnings            12,000  16,000

Total Assets                    $21,400                       Total Liabilities & Stockholders’ Equity  $ 21,400

Required: Provide a consolidated balance sheet at 1/01/14 for the consolidated entity (Chandler and Hosterman

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