On July 1,2019,as a long-term investment,Wildlife Supply Company purchased 6,000 of the 18,000 outstanding shares of the nonvoting preferred stock of Nature Company for $30 per share.The records of Nature Company reflect the following: The amount reported on the balance sheet by Wildlife Company for its investment at December 31,2019 would be which of the following?

A) $179,800.
B) $162,000.
C) $182,000.
D) $197,800.

Question

On July 1,2019,as a long-term investment,Wildlife Supply Company purchased 6,000 of the 18,000 outstanding shares of the nonvoting preferred stock of Nature Company for $30 per share.The records of Nature Company reflect the following:

The amount reported on the balance sheet by Wildlife Company for its investment at December 31,2019 would be which of the following?

A) $179,800.
B) $162,000.
C) $182,000.
D) $197,800.

Sukhdeep Singh · Accepted Answer

Final Answer : B, Explanation :  Wildlife Supply Company purchased 6,000 of the 18,000 outstanding shares of the nonvoting preferred stock of Nature Company for $30 per share. Therefore, the total cost of the investment is 6,000 * $30 = $180,000.As per the records of Nature Company, no change in the value of nonvoting preferred stock is reported from July 1, 2019, to December 31, 2019. Hence, the carrying value of the investment by Wildlife Company would be equal to its cost, i.e., $180,000.However, the question specifically asks about the amount reported on the balance sheet by Wildlife Company for its investment at December 31, 2019. So, we need to consider the possibility of any adjustments due to market value changes.Since there is no information provided about the market value of nonvoting preferred stock, we can assume that there is no significant change in the market value during this period. Therefore, the amount reported on the balance sheet by Wildlife Company for its investment at December 31, 2019, would be equal to its carrying value, i.e., $180,000.However, we need to remember that nonvoting preferred stock is a type of equity security and is reported at fair value on the balance sheet. But in this scenario, as per the given information, no such adjustment is required to be made, and hence the carrying value of the investment would be equal to the amount reported on the balance sheet.

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