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On January 2, 2011, Sanborn Tobacco, Inc., bought 5% of Jackson Industry's capital stock for 90 million as a temporary investment. Sanborn realized that these securities normally would be classified as available-for-sale, but elected the fair value option to account for the investment. Jackson Industry's net income for the year ended December 31, 2011, was $120 million. The fair value of the shares held by Sanborn was $98 million at December 31, 2011. During 2011, Jackson declared a dividend of $60 million.

Required:

Would this investment be clasified on Sanborn's balance sheet as a held-to-maturity securities, trading securities, available-for-sale securities, significant-incluence investments, or other? describe Prepare all appropriate journal entries related to the investment during 2011.

Indicate the effect of this investment on 2011 income before taxes.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M961841

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