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.
Extracted text: 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
Extracted text: 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