Based on your analysis of the Lion Tire transactions, draft the journal entries that should have been made in an Excel spreadsheet. Then, write a memo to Andrew explaining the accounting principles that should have been followed for Panache's investment in Lion Tire. In your memo:Illustrate how the investment will be reported in the company's balance sheet and income statement.Summarize how and why the accounting for this investment is different from the accounting for Panache's other investment securities.Devise three ways, based on past practices, that Panache can improve its future accounting principles for the Lion Tire transactions. Use examples from the Excel spreadsheet when necessary. Panache, Inc.The Lion Tire file contained the following:1/2/2007Purchase advice for the purchase of 30,000 shares of Lion Tire at $12 per shareThe following balance sheet was also in the file, with a notation that the carrying valuesand fair values of Lion's assets were the same.Lion Tire, Inc.Balance SheetAs of December 31, 2006(in thousands)Liabilities and Stockholders' EquityAssetsCurrent Assets$ 60,000 Liabilities$300,000Property, Plant & Equipment, netOther Assets600,000240,000 | Common Stock, no parRetained EarningsTotal Stockholders' Equity180,000420,000600,000Total Assets$900,000 Total Liabilities and Stockholders' Equity $900,0004/1/2007Check stub and copy of deposit ticket with the notation "Dividend received from Lion Tire@ $.50 per share10/1/2007Check stub and copy of deposit ticket with the notation "Dividend received from Lion Tire@ $.50 per share"Section of Wal Street Joumal for December 31, 2007, showing Lion Tire stock closed ata price of $15 per share12/31/200712/31/2007Condensed income statement and statement of retained earnings for Lion Tire as ofDecember 31, 2007.Lion Tire, Inc.Income StatementFor the Year Ended December 31, 2007Lion Tire, Inc.Statement of Retained EarningsFor the Year Ended December 31, 2007$ 420,000RevenuesExpenses$600,000408.000$192.000Beginning Retained EamingsAdd Net Income192.000612,000100,000$512.000Net IncomeLess: Cash DividendsEnding Retained EarningsPage 1 of 2ACC5328 Financial Accounting IIe 2008 Sguth LInbuergity Panache's general ledger accounts related to Lion Tire are shown below:Available-for-Sale SecuritiesDateCredit I BalanceDescription1/2/07 Purchase 30,000 shares of Lion Tire no-par common stock $360,000Debit$360,000Dividend IncomeDateCreditDescriptionCash dividend received from Lion TireDebitBalance$15,000$30,0004/1/07$15,00015,00010/1/07 | Cash dividend received from Lion Tire

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Answered: Based on your analysis of the Lion Tire…

FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Based on your analysis of the Lion Tire transactions, draft the journal entries that should have been made in an Excel spreadsheet. Then, write a memo to Andrew explaining the accounting principles that should have been followed for Panache's investment in Lion Tire. In your memo:

Illustrate how the investment will be reported in the company's balance sheet and income statement.
Summarize how and why the accounting for this investment is different from the accounting for Panache's other investment securities.
Devise three ways, based on past practices, that Panache can improve its future accounting principles for the Lion Tire transactions. Use examples from the Excel spreadsheet when necessary.

Panache, Inc.
The Lion Tire file contained the following:
1/2/2007
Purchase advice for the purchase of 30,000 shares of Lion Tire at $12 per share
The following balance sheet was also in the file, with a notation that the carrying values
and fair values of Lion's assets were the same.
Lion Tire, Inc.
Balance Sheet
As of December 31, 2006
(in thousands)
Liabilities and Stockholders' Equity
Assets
Current Assets
$ 60,000 Liabilities
$300,000
Property, Plant & Equipment, net
Other Assets
600,000
240,000 | Common Stock, no par
Retained Earnings
Total Stockholders' Equity
180,000
420,000
600,000
Total Assets
$900,000 Total Liabilities and Stockholders' Equity $900,000
4/1/2007
Check stub and copy of deposit ticket with the notation "Dividend received from Lion Tire
@ $.50 per share
10/1/2007
Check stub and copy of deposit ticket with the notation "Dividend received from Lion Tire
@ $.50 per share"
Section of Wal Street Joumal for December 31, 2007, showing Lion Tire stock closed at
a price of $15 per share
12/31/2007
12/31/2007
Condensed income statement and statement of retained earnings for Lion Tire as of
December 31, 2007.
Lion Tire, Inc.
Income Statement
For the Year Ended December 31, 2007
Lion Tire, Inc.
Statement of Retained Earnings
For the Year Ended December 31, 2007
$ 420,000
Revenues
Expenses
$600,000
408.000
$192.000
Beginning Retained Eamings
Add Net Income
192.000
612,000
100,000
$512.000
Net Income
Less: Cash Dividends
Ending Retained Earnings
Page 1 of 2
ACC5328 Financial Accounting II
e 2008 Sguth LInbuergity

Panache's general ledger accounts related to Lion Tire are shown below:
Available-for-Sale Securities
Date
Credit I Balance
Description
1/2/07 Purchase 30,000 shares of Lion Tire no-par common stock $360,000
Debit
$360,000
Dividend Income
Date
Credit
Description
Cash dividend received from Lion Tire
Debit
Balance
$15,000
$30,000
4/1/07
$15,000
15,000
10/1/07 | Cash dividend received from Lion Tire

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