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Submitted by KnowledgeCats on Mon, 2013-10-28 06:47
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Brooks Corp. is a medium-sized corporation specializing

Brooks Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company’s profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years, Brooks has had a policy of investing idle cash in equity securities. In particular, Brooks has made periodic investments in the company’s principal supplier, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries, Brooks does not have significant influence over the operations of Norton Industries.



Cheryl Thomas has recently joined Brooks as assistant controller, and her first assignment is to prepare the 2012 year-end adjusting entries for the accounts that are valued by the “fair value” rule for financial reporting purposes. Thomas has gathered the following information about Brooks’s pertinent accounts.

1.

 

Brooks has trading securities related to Delaney Motors and Patrick Electric. During this fiscal year, Brooks purchased 100,000 shares of Delaney Motors for $1,400,000; these shares currently have a market value of $1,600,000. Brooks’ investment in Patrick Electric has not been profitable; the company acquired 50,000 shares of Patrick in April 2012 at $20 per share, a purchase that currently has a value of $720,000.

2.

 

Prior to 2012, Brooks invested $22,500,000 in Norton Industries and has not changed its holdings this year. This investment in Norton Industries was valued at $21,500,000 on December 31, 2011. Brooks’ 12% ownership of Norton Industries has a current market value of $22,225,000.



For both classes of securities presented above, describe how the results of the valuation adjustments made to reflect the application of the “fair value” rule would be reflected in the body of and notes to Brooks’ 2012 financial statements. (Refer to Problem 17-8.)

Answer
Submitted by KnowledgeCats on Mon, 2013-10-28 06:47
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Brooks Corp. is a medium-sized corporation specializing

body preview (122 words)

 

xxxxxxxxx

xx

 

xx

 

xxxxxxxxxxx xxxxxxx

 xx
 

 xxxxxx xx xxxxxxx Motrs

xxx     1,400,000.00

 
 

xxxxxx xxxx

 

xx$     xxxxxxxxxxxx

  xx 
xx

 Securities Fair value adjustment

xxx         xxxxxxxxxx

 
xx

    Unrealized xxxxxxx gains

xx

xxxxxxxxxxxxxxxxxxx 200,000.00

   xx
xx

xxxxxxxx xx Patrick

xxxxxxxxxxxxxxxxxxx 100,000.00

 
xx

    xxxx

xx

 $xxxxxxxxxxxxxxxx 100,000.00

xx xx 
 

xxxxxxxxxxxx xxxxx value loss

 $xxxxxxxxxxxxxxxx 280,000.00

 
xx

    Securities xxxx xxxxx adjustment

xx

xx$         280,000.00

xxxxxx 
xx

xxShares xx norton industries

 x   22,500,000.00

 
xx

xxxxxx Cash

xx

xxx   22,500,000.00

xxxx  
xx

 xxxxxxxxxx xxxxxx xxxxx loss

xx$         275,000.00

xx
xx

    Securities fair value xxxxxxxxxx

xx

xx$xxxxxxxxxxxxxxxx xxxxxxxxxx

  xx 

 b

 xxxxxxxxxx xx xxxxxxx xxxxxx

 xxxxxxxxx xxxxxxxxxxxx

 
xx

xxxxxxxxxxxx xx xxxxxxx

 x         720,000.00

 
 

xxxxxxxxxxxx xx xxxxxx xxxxxxxxxx

 $   xxxxxxxxxxxxx

 
xx

 Total xxxxxxxxxx

 

 $   24,545,000.00

xx xx 

xxx

 Dividends calculation

xxxx
 xx  
 

xxxxxxx Dividends

 $xxxxxxxxxxxxxxxx xxxxxxxxxx

xx
xx

 Brooks share

xx$                       xxxx

 
 

xxxxxxxxxxx of brooks

 $            xxxxxxxxx

xx
xxxxxxxx
xx

 Cash

 xxxxxxxxxxxxxxxxxxxxxxx 25,000.00

xx
 

xxxxxx xxxxxxxxx xxxxxxx

 

xxxxxxxxxxxxxxxxxxxxxxxxx 25,000.00

 

xx

 


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