Problem NO: 18

On November 3, 2014, Sprinkle Co. invested $200,000 in 4,000 shares of the common stock of Pratt Co. Sprinkle classified this investment as available-

On November 3, 2014, Sprinkle Co. invested $200,000 in 4,000 shares of the common stock of Pratt Co. Sprinkle classified this investment as available-for-sale. Sprinkle Co. is considering making a more significant investment in Pratt Co. at some point in the future but has decided to wait and see how the stock does over the next several quarters.

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Date Market Price of Pratt Shares Time Value of Put Option

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December 31, 2014 $50 per share $375

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March 31, 2015 45 per share 175

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June 30, 2015 43 per share 40

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Instructions

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(a) Prepare the journal entries for Sprinkle Co. for the following dates.

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(1) November 3, 2014—Investment in Pratt stock and the put option on Pratt shares.

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(2) December 31, 2014—Sprinkle Co. prepares financial statements.

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(3) March 31, 2015—Sprinkle prepares financial statements.

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(4) June 30, 2015—Sprinkle prepares financial statements.

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(5) July 1, 2015—Sprinkle settles the put option and sells the Pratt shares for $43 per share.

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(b) Indicate the amount(s) reported on the balance sheet and income statement related to the Pratt investment and the put option on December 31, 2014.

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(c) Indicate the amount(s) reported on the balance sheet and income statement related to the Pratt investment and the put option on June 30, 2015.

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