Appendix D – Investments
119. On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage
fee. This purchase represents less than 20% ownership of the Lucas Company. On August 22, Lucas paid a $0.42
dividend per share. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee.
Prepare the journal entries for the original purchase, dividend, and sale.
120. On January 2, Todd Company acquired 40% of the outstanding stock of McGuire Company for $205,000. For the
year ending December 31. McGuire earned income of $48,000 and paid dividends of $14,000.
Prepare the entries for Todd Company for the purchase of the stock, share of McGuire income, and dividends received
from McGuire.
Appendix D – Investments
121. Journalize the entries to record the following selected equity investment transactions completed by Perry Company
during the current year. Perry accounts for this investment using the cost method.
February 2
Purchased for cash 900 shares of Dexter Co. stock for $54 per
share plus a $450 brokerage commission. This represents a less
than 10% ownership interest in the company.
April 16
Received dividends of $0.25 per share on Dexter Co. stock.
June 17
Sold 200 shares of Dexter Co. stock for $70 per share less a $500
brokerage commission.
August 19
Purchased 600 shares of Dexter Co. stock for $65 per share plus a
$300 brokerage commission.
November 14
Received dividends of $0.30 per share on Dexter Co. stock.
Cash
Dividend Revenue
Investments—Dexter Co. Stock
Gain on Sale of Investments
(200 shares × $70) – $500
Cash
Dividend Revenue
122. Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1. Marco reported net
income of $95,000 and declared dividends of $35,000 during the year. How much would Ramiro adjust its investment in
Marco Company under the equity method?
Increase in Investment—Marco Company stock
Appendix D – Investments
123. Pepito Company purchased 40% of the outstanding stock of Reyes Company on January 1. Reyes reported net
income of $75,000 and declared dividends of $15,000 during the current year. How much would Pepito adjust its
investment in Reyes Company under the equity method?
Increase in Investments—Reyes Company stock
124. Sutton Company purchased 10% of the outstanding stock of Roberts Company on January 1. Roberts reported net
income of $155,000 and declared dividends of $40,000 during the year. How would these events be reported by Sutton
using the cost method?
$4,000 of the declared dividend, which would be reported as other revenue.
125. Journalize the entries to record the following selected equity investment transactions completed by Flurry Company
during the current year. Flurry’s purchase represents less than 20% of the total outstanding Braxter stock.
February 2
Purchased for cash 500 shares of Braxter Co. stock for $34 per
share plus a $250 brokerage commission.
April 16
Received dividends of $0.35 per share on Braxter Co. stock.
June 17
Sold 100 shares of Braxter Co. stock for $40 per share less a $100
brokerage commission.
Feb. 2
Cash
Apr. 16
Dividend Revenue
500 × $0.35
June 17
Investments—Braxter Co. Stock
Gain on Sale of Investments
(100 × $40) – $100
$17,250/500 = 34.50 × 100
Appendix D – Investments
126. On March 1, Year 1, Chase Inc. purchases 35% of the outstanding shares of Glory Corporation stock for
$325,000. On December 31, Year 1, Glory reports net income of $162,000. On January 15, Year 2, Glory pays total
dividends to stockholders of $33,000.
Journalize the three transactions.
March 1
Investments—Glory Corp. Stock
325,000
Cash
Investments—Glory Corp. Stock
Income of Glory Corp.
Jan. 15
Cash
Investments—Glory Corp. Stock
127. Prepare the journal entries for the following transactions for Batson Co.
(a)
Batson Co. purchased 1,200 shares of the total of 100,000 outstanding
shares of Michael Corp. stock for $20.75 per share plus a $70 commission.
(b)
Michael’s total earnings for the period are $84,000.
(c)
Michael’s paid a total of $40,000 in cash dividends to shareholders of record.
Investments—Michael Corp. Stock
Cash
128. Prepare the journal entries for the following transactions for Morgan Co.
(a)
Morgan Co. purchased 32,000 shares of the total of 100,000 outstanding shares of Gordon
Corp. stock for $10 per share plus a $400 commission.
(b)
Gordon Corp.’s total earnings for the period are $80,000.
(c)
Gordon Corp. paid a total of $45,000 in cash dividends.
Appendix D – Investments
Investments—Gordon Corp. Stock
Investments—Gordon Corp. Stock
Cash
$45,000 × 32%
129. Present entries to record the following selected transactions of Masterson Co.
(a)
Purchased 600 shares of the 100,000 shares outstanding $10 par common shares of Dankin
Corporation for $5,100.
(b)
Purchased 3,500 shares of the 10,000 shares no par common shares of Ramon Co. for
$45,700. The investment was accounted for by the equity method.
(c)
Received a cash dividend of $1 per share on the Dankin Corporation stock acquired in (a).
(d)
Received a cash dividend of $2 per share on the Ramon Co. stock acquired in (b).
(e)
Sold 100 shares of the Dankin Corporation shares acquired in (a) for $2,100.
(f)
Dankin Corporation reported net income of $30,000 and Ramon Company’s reported net
income was $50,000.
Investments—Dankin Corporation Stock
Investments—Ramon Co. Stock
Cash
Cash
Cash
Investments—Ramon Co. Stock
Appendix D – Investments
130. Discuss the appropriate financial treatment when an investor has a greater than 50% ownership in another company.
are combined into consolidated financial statements.
131. On January 1, the Valuation Allowance for Trading Investments account has a zero balance. On December 31, the
cost of trading securities portfolio was $64,200, and the fair value was $67,000.
Prepare the December 31 adjusting journal entry to record the unrealized gain or loss on trading investments.
Valuation Allowance for Trading Investments
132. Skyline, Inc. purchased a portfolio of trading securities during the current fiscal year. The cost and fair value of this
portfolio on December 31 was as follows:
Name
Number of Shares
Total Cost
Total Fair Value
Alcon, Inc.
1,200
$16,000
$15,000
Easton Company
700
23,000
21,500
Panther Company
300
9,000
9,200
Total
$48,000
$45,700
(a) Provide the journal entry to record the adjustment of the trading security portfolio to fair value on December 31.
(b) Where will the information from the journal entry be reported on the financial statements?
ACCREDITING STANDARDS:
Appendix D – Investments
(a) Unrealized Loss on Trading Investments
Valuation Allowance for Trading Investments
$45,700 – $48,000
133. Skyline, Inc. purchased a portfolio of available-for-sale securities during the current fiscal year. The cost and fair
value of this portfolio on December 31 was as follows:
Name
Number of Shares
Total Cost
Total Fair Value
Blackstone, Inc.
400
$ 4,000
$ 5,200
Flagler Company
200
3,000
2,700
Patterson Corporation
600
7,500
9,800
Total
$14,500
$17,700
(a) Provide the journal entry to record the adjustment of the available-for-sale security portfolio to fair value on December
31.
(b) Where will the information from the journal entry be reported on the financial statements?
$17,700 – $14,500
134. The income statement for Hudson Company reported net income of $345,000 for the year ended December 31 before
considering the following:
• During the year the company purchased trading securities.
• At year end, the fair value of the investment portfolio was $23,000 less than cost.
• The balance of Retained Earnings was $823,000 on January 1.
• Hudson Company paid $43,000 in cash dividends during the year.
Calculate the balance of Retained Earnings on December 31.
Appendix D – Investments
Retained earnings, January 1
$ 823,000
$322,000
Dividends
Change in retained earnings
net income calculation. ($345,000 – $23,000)
135. The income statement for Dodson Corporation reported net income of $22,400 for the year ended December 31
before considering the following:
• During the year the company purchased available-for-sale securities.
• At year end, the fair value of the investment portfolio was $2,100 more than cost.
• The balance of Retained Earnings was $83,000 on January 1.
• Dodson Corporation paid $9,000 in cash dividends during the year.
Calculate the balance of Retained Earnings on December 31.
Retained earnings, January 1
Dividends
Change in retained earnings
part of stockholders’ equity, not net income.
136. During the first year of operations, Makala Company purchased two available-for-sale investments as follows:
Security
Shares Purchased
Cost
Oceanna Company
700
$29,000
Rockledge, Inc.
1,900
41,000
Assume that as of December 31, the Oceanna Company stock had a market value of $49 per share and Rockledge, Inc.
stock had a market value of $20 per share. Makala had 10,000 shares of no-par stock outstanding that was issued for
$150,000. For the year ending December 31, Makala had net income of $105,000. No dividends were paid.
Appendix D – Investments
(a)
Prepare the current assets section of the balance sheet presentation for the available-for sale
securities as of December 31.
(b)
Prepare the stockholders’ equity section of the balance sheet as of December 31.
Current assets:
Available-for-sale investments (at cost)
Valuation allowance for available-for-
*Computation:
Market:
Oceanna Company: 700 shares × $49
Rockledge, Inc.: 1,900 shares × $20
Subtotal
Cost ($29,000 + $41,000)
Unrealized gain
Common stock
Retained earnings
Unrealized gain (loss) on available-for-sale investments
Total stockholders’ equity
137. Discuss the similarities and differences in reporting trading securities, available-for-sale securities, and held–to–
maturity securities.
Appendix D – Investments
138. On January 1, the Valuation Allowance for Available-for-Sale Investments account had a zero balance. On
December 31, the cost of the available-for-sale securities was $48,700, and the fair value was $39,200. Prepare the
adjusting entry to record the unrealized gain or loss for available-for-sale investments on December 31.
139. The cost and fair value of the trading securities held by Lindy Company as of December 31 are as follows:
Name
Number
of
Shares
Cost
per
Share
Fair
Value
per
Share
Total
Cost
Total
Fair
Value
Laurie, Inc.
1,200
$10.50
$11.05
Scott Corp.
600
9.00
9.85
Stephanie Company
900
4.10
4.00
Timmer Company
1,400
7.35
6.82
Total
(a) Complete the table above to find the total cost and fair value for the company’s trading securities portfolio.
(b) Calculate and record the required December 31 adjustment.
(c) Explain how the adjustment from step (b) is reported on Lindy’s financial statements.
Appendix D – Investments
Laurie, Inc.
Scott Corp.
Stephanie Company
Timmer Company
(b)
Valuation Allowance for Trading Investments
$32,318 – $31,980 = $338 unrealized gain
140. Following are data for the available-for-sale securities held by Lindy Company as of December 31:
Name
Number of
Shares
Cost
per Share
Fair Value
per Share
Total Cost
Total
Fair Value
Laurie, Inc.
1,200
$15.00
$15.40
Scott Corp.
800
8.00
8.25
Stephanie Company
700
14.40
13.50
Timmer Company
900
12.35
10.77
Total
(a) Complete the table above to find the total cost and fair value for the company’s available-for-sale securities portfolio.
(b) Calculate and record the required December 31 adjustment.
(c) Explain how the adjustment from step (b) is reported on Lindy’s financial statements.
Laurie, Inc.
Scott Corp.
Stephanie Company
Timmer Company
Appendix D – Investments