Headland Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company's profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years, Headland has had a policy of investing idle cash in equity securities. In particular, Headland has made periodic investments in the company's principal vendor of mining equipment, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries, Headland does not have significant influence over the operations of Norton Industries. Cheryl Thomas has recently joined Headland as assistant controller, and her first assignment is to prepare the December 31, 2025 year-end adjusting entries for the accounts that are valued by the "fair value" rule for financial reporting purposes. Thomas has gathered the following information about Headland's pertinent accounts. 1. Headland has equity securities related to Delaney Motors and Patrick Electric. During 2025, Headland purchased 98,000 shares of Delaney Motors for $1,372,000; these shares currently have a fair value of $1,653,000. Headland' investment in Patrick Electric has not been profitable; the company acquired 50,000 shares of Patrick in April 2025 at $21 per share, a purchase that currently has a value of $719,000. 2. Prior to 2025, Headland invested $22,673,000 in Norton Industries and has not changed its holdings this year. This investment in Norton Industries was valued at $21,700,000 on December 31, 2024. Headland' 12% ownership of Norton Industries has a current fair value of $22,352,000 on December 31, 2025.
Headland Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company's profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years, Headland has had a policy of investing idle cash in equity securities. In particular, Headland has made periodic investments in the company's principal vendor of mining equipment, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries, Headland does not have significant influence over the operations of Norton Industries. Cheryl Thomas has recently joined Headland as assistant controller, and her first assignment is to prepare the December 31, 2025 year-end adjusting entries for the accounts that are valued by the "fair value" rule for financial reporting purposes. Thomas has gathered the following information about Headland's pertinent accounts. 1. Headland has equity securities related to Delaney Motors and Patrick Electric. During 2025, Headland purchased 98,000 shares of Delaney Motors for $1,372,000; these shares currently have a fair value of $1,653,000. Headland' investment in Patrick Electric has not been profitable; the company acquired 50,000 shares of Patrick in April 2025 at $21 per share, a purchase that currently has a value of $719,000. 2. Prior to 2025, Headland invested $22,673,000 in Norton Industries and has not changed its holdings this year. This investment in Norton Industries was valued at $21,700,000 on December 31, 2024. Headland' 12% ownership of Norton Industries has a current fair value of $22,352,000 on December 31, 2025.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Headland Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long
dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company's profits, coupled with
a conservative dividend policy, resulted in funds available for outside investment. Over the years, Headland has had a policy of
investing idle cash in equity securities. In particular, Headland has made periodic investments in the company's principal vendor of
mining equipment, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries,
Headland does not have significant influence over the operations of Norton Industries.
Cheryl Thomas has recently joined Headland as assistant controller, and her first assignment is to prepare the December 31, 2025
year-end adjusting entries for the accounts that are valued by the "fair value" rule for financial reporting purposes. Thomas has
gathered the following information about Headland's pertinent accounts.
1.
2.
(a)
Headland has equity securities related to Delaney Motors and Patrick Electric. During 2025, Headland
purchased 98,000 shares of Delaney Motors for $1,372,000; these shares currently have a fair value of $1,653,000.
Headland' investment in Patrick Electric has not been profitable; the company acquired 50,000 shares of Patrick in April
2025 at $21 per share, a purchase that currently has a value of $719,000.
Prior to 2025, Headland invested $22,673,000 in Norton Industries and has not changed its holdings this year. This
investment in Norton Industries was valued at $21,700,000 on December 31, 2024. Headland' 12% ownership of Norton
Industries has a current fair value of $22,352,000 on December 31, 2025.
Prepare the appropriate adjusting entries for Headland as of December 31, 2025, to reflect the application of the "fair value" rule
for the securities described above. (List debit entry before credit entry. Credit account titles are automatically indented when amount is
entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)
Account Titles and Explanation
Debit
Credit
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