Hampton Developments Had the Following Transactions Pertaining to Its Short-Term

question 29

Essay

Hampton Developments had the following transactions pertaining to its short-term equity investments. Hampton does not use an allowance account to record unrealized gains and losses, but $$\begin{array} { | l | l | } \hline \text { Jan. 1 } & \begin{array} { l } \text { Purchased 1,000 shares of Chapman Foods Ltd. for } \$ 50,000 \text { cash, plus brokerage } \\\text { fees of } \$ 550 . \text { The shares were classified as trading securities. }\end{array} \\\hline \text { June 1 } & \text { Received cash dividends of } \$ 3 \text { per share on the Chapman shares. } \\\hline \text { Sept. 15 } & \text { Sold } 500 \text { Chapman shares for } \$ 24,900 , \text { less brokerage fees of } \$ 100 . \\\hline \text { Dec. } 31 & \text { The fair value of the Chapman shares was } \$ 25,400 . \\\hline\end{array}$$ Required: 1. Prepare all the journal entries required for these transactions. 2. How will these transactions be reported on the statement of earnings ending on December 31?

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Definitions:

Capital Assets

Long-term tangible or intangible assets owned or controlled by a business that are used to produce goods or services and are not intended for sale in the regular course of business.

Equity Method

An accounting technique used for recording investments in associate companies where the investment is represented by the equity value.

Cost Method

An accounting approach whereby investments are recorded at their original purchase cost, without adjusting for changes in fair value, except for impairments.

Investment

The allocation of resources, such as capital or time, in the expectation of generating an income or profit.