year. At December 31, the market price of Ramirez Fashion was $18
per share. The securities are classified as available-for-sale.
Situation 2
Holmes, Inc. obtained significant influence over Nadal Corporation b
y buying 25% of Nadal‟s 30,800 outstanding shares of common stock
at a total cost of $9 per share on January 1, 2012. On June 15, Nadal d
eclared and paid a cash dividend of $43,800. On December 31, Nadal
reported a net income of $90,500 for the year.
Question 13
(Equity Method)
Gator Co. invested $1,380,000 in Demo Co. for 25% of its outstandin
g stock. Demo Co. pays out 40% of net income in dividends each year
.
Use the information in the following Taccount for the investment in Demo to answer the following questions
.
Question 14
(Fair Value and Equity Method Compared)
Gregory Inc. acquired 20% of the outstanding common stock of Hand
erson Inc. on December 31, 2012. The purchase price was $1,320,000
for 50,000 shares. Handerson Inc. declared and paid an $0.87 per sha
re cash dividend on June 30 and on December 31, 2013. Handerson re
ported net income of $741,000 for 2013. The fair value of Handerson‟
s stock was $32 per share at December 31, 2013.
Question 15
(Call Option)
On January 2, 2012, Jones Company purchases a call option for $450
on Merchant common stock. The call option gives Jones the option to
buy 1,000 shares of Merchant at a strike price of $50 per share. The m
arket price of a Merchant share is $50 on January 2, 2012 (the intrinsi
c value is therefore $0). On March 31, 2012, the market price for Mer
chant stock is $60 per share, and the time value of the option is $200.
Question 16
In 2012, Amirante Corporation had pretax financial income of $207,0
00 and taxable income of $166,400. The difference is due to the use o
f different depreciation methods for tax and accounting purposes. The