Question #19
Reading: Reading 8 Intercorporate Investments
PDF File: Reading 8 Intercorporate Investments.pdf
Page: 8
Status: Correct
Correct Answer: A
Question
Milburne Company purchased 1,000 shares of Marino Co. for $20 per share on January 1. By December 31, shares of Marino were trading at $15 per share in the open market. Marino Co. has 100,000 shares outstanding with a dividend yield of 2% at year end. Milburne choose FVOCI classification for these shares. The impact of the Marino holding on the Milburne income statement is:
Answer Choices:
A. $300
B. -$4,700
C. -$5,000. On January 9, 2006, Company X paid $2,000,000 for 100,000 shares of stock in Company S. Originally the company classified the shares as fair value through OCI. As of December 31, the stocks were valued at $2,200,000. In 2006, Company S had earnings per share of $0.90 and paid dividends per share of $0.20. In late December 2006 the company wonders what would be the change if the company had classified the shares as fair value through P&L
Explanation
These securities are to be classified as FVOCI and hence, all unrealized gains and losses
are taken to OCI in shareholder's equity on the balance sheet. Hence, the only income
statement impact is the $300 dividend = 0.02 × $15 × 1,000.
(Module 8.6, LOS 8.c)
On January 9, 2006, Company X paid $2,000,000 for 100,000 shares of stock in Company S.
Originally the company classified the shares as fair value through OCI. As of December 31,
the stocks were valued at $2,200,000. In 2006, Company S had earnings per share of $0.90
and paid dividends per share of $0.20. In late December 2006 the company wonders what
would be the change if the company had classified the shares as fair value through P&L.