Handout D–1, continued
4. At February 17, 2017, Bellows sold the stock for $115 per share. Prepare the journal entry required to
record this transaction and update the appropriate T-accounts:
Feb. 17
2017
Note: Start with the beginning balances as of January 1, 2017 in the T-accounts below.
Handout D–1 Solution
BELLOWS CORP.
1. Bellows Corp. had $100,000 in its Cash account on January 1, 2016. On June 15, 2016, Bellows
Corp. acquired 100 shares of Sonny, Inc. for $75 per share. Assuming that Bellows considers the
stock as a security available for sale, prepare the journal entry required to record this transaction and
post it to the appropriate T-accounts:
June 15
Available-for-Sale Securities (+A)
7,500
Cash (–A)
7,500
+ Available-for-Sale Securities (A) –
June 15
7,500
7,500
+ Cash (A) –
100,000
June 15
92,500
2. On September 15, 2016, Bellows Corp. received dividends from Sonny of $2 per share. Prepare the
journal entry required to record this transaction and update the appropriate T-accounts:
Sep. 15
Cash (+A) (100 shares @ $2)
200
Dividend Revenue (+R, +SE)
200
– Dividend Revenue +
200
Sep. 15
200
+ Cash (A) –
100,000
200
June 15
92,700
3. At December 31, 2016, the value of the stock was $120 per share. Prepare the journal entry required
to record this transaction and update the appropriate T-accounts:
Year
Fair Value
–
Balance in
Available-for-Sale Securities Account
=
Amount for Adjusting Entry
2016
$12,000
($120 × 100)
–
7,500
=
4,500
Dec. 31
Available-for-Sale Securities (+A)
4,500
Net Unrealized Losses/Gains (+SE)
4,500
+ Available-for-Sale Securities (A) –
June 15
7,500
Dec. 31
4,500
12,000
– Net Unrealized Losses/Gains (SE) +
Dec. 31
Handout D–1 Solution, continued
4. On February 17, 2017, Bellows sold the stock for $115 per share. Prepare the journal entry required
to record this transaction and update the appropriate T-accounts:
Feb. 17
Cash (+A) ($115 × 100)
11,500
2017
Available-for-Sale Securities (–A)
12,000
Gain on Sale of Investments (+R, +SE)
4,000
Net Unrealized Losses/Gains (–SE)
4,500
Note: Start with the beginning balances as of January 1, 2017 in the T-accounts below.
+ Cash (A) –
Jan. 1
Feb. 17
+ Available-for-Sale Securities (A) –
Jan. 1
12,000
12,000
Feb. 17
0
– Gain on Sale of Investments (SE, R) +
Feb. 17
– Net Unrealized Losses/Gains (SE) +
Jan. 1
4,500
Handout D–2
BAWL CORP.
1. Bellows Corp. had $100,000 in its Cash account on January 1, 2016. On June 15, 2016, Bellows
Corp. acquired 100 shares of Sonny, Inc. for $75 per share. Assuming that Bellows considers the
stock as a trading security, prepare the journal entry required to record this transaction and post it to
the appropriate T-accounts:
June 15
2. On September 15, 2016, Bawl Corp. received dividends from Darkness of $2 per share. Prepare the
journal entry required to record this transaction and update the appropriate T-accounts:
Sept. 15
3. At December 31, 2016, the value of the stock was $120 per share. Prepare the journal entry required
to record this transaction and update the appropriate T-accounts:
Computation of amount:
Dec. 31
Handout D–2, continued
4. At February 17, 2017, Bawl sold the stock for $115 per share. Prepare the journal entry required to
record this transaction and update the appropriate T-accounts:
Feb. 17
2017
Note: Start with the beginning balances as of January 1, 2017 in the T-accounts below.
Handout D–2 Solution
BAWL CORP.
1. Bellows Corp. had $100,000 in its Cash account on January 1, 2016. On June 15, 2016, Bellows
Corp. acquired 100 shares of Sonny, Inc. for $75 per share. Assuming that Bellows considers the
stock as a trading security, prepare the journal entry required to record this transaction and post it to
the appropriate T-accounts:
June 15
Trading Securities (+A)
7,500
Cash (–A)
7,500
+ Trading Securities (A) –
June 15
7,500
7,500
+ Cash (A) –
100,000
June 15
92,500
2. On September 15, Bawl Corp. received dividends from Darkness of $2 per share. Prepare the journal
entry required to record this transaction and update the appropriate T-accounts:
Sep. 15
Cash (+A) (100 shares × $2)
200
Dividend Revenue (+R, +SE)
200
– Dividend Revenue +
200
Sep. 15
200
+ Cash (A) –
100,000
200
June 15
92,700
3. At December 31, 2016, the value of the stock was $120 per share. Prepare the journal entry required
to record this transaction and update the appropriate T-accounts:
Year
Fair Value
–
Balance in Trading Securities Account
=
Amount for Adjusting Entry
2016
$12,000
($120 × 100)
–
7,500
=
4,500
Dec. 31
Trading Securities (+A)
4,500
Net Unrealized Losses/Gains (+R,+SE)
4,500
+ Trading Securities (A) –
June 15
7,500
Dec. 31
4,500
12,000
– Net Unrealized Losses/Gains (R, SE) +
4,500
Dec. 31
4,500
Handout D–2 Solution, continued
4. At February 17, 2017, Bawl sold the stock for $115 per share. Prepare the journal entry required to
record this transaction and update the appropriate T-accounts:
Feb. 17
Cash (+A) ($115 × 100)
11,500
2017
Loss on Sale of Investments (+R, +SE)
(11,500 – 7,500 – 4,500)
500
Trading Securities (–A)
12,000
Note: Start with the beginning balances as of January 1, 2017 in the T-accounts below.
+ Cash (A) –
Jan. 1
Feb. 17
+ Trading Securities (A) –
Jan. 1
12,000
12,000
Feb. 17
0
+ Loss on Sale of Investments (+R, +SE) –
Feb. 17
500
500
Handout D–3
PARADE CORP.
1. Parade Corp. had $10,000,000 in its Cash account on January 1, 2016. On January 2, 2016, Parade
Corp. paid $5,000,000 cash to acquire 400,000 shares of stock in Band Corp. These shares represent
40% of Band Corp.’s total outstanding stock. Parade accounted for this acquisition using the equity
method. Prepare the journal entry required to record this transaction and, after entering the beginning
Cash account balance, post it to the appropriate T-accounts:
Jan. 2
2. For the year ended December 31, 2016, Band Corp. earned $800,000 in net income. Prepare the
journal entry required to record this transaction and update the appropriate T-accounts:
Dec. 31
3. On December 31, 2016, Band Corp. declared and paid $500,000 in dividends. Prepare the journal
entry required to record this transaction and update the appropriate T-accounts:
Dec. 31
Handout D–3 Solution
PARADE CORP.
1. Parade Corp. had $10,000,000 in its Cash account on January 1, 2016. On January 2, 2016, Parade
Corp. paid $5,000,000 cash to acquire 400,000 shares of stock in Band Corp. These shares represent
40% of Band Corp.’s total outstanding stock. Parade accounted for this acquisition using the equity
method. Prepare the journal entry required to record this transaction and, after entering the beginning
Cash account balance, post it to the appropriate T-accounts:
Jan. 2
Investments in Affiliates (+A)
5,000,000
Cash (-A)
5,000,000
+ Investments in Affiliates (A) –
Jan. 1
Jan. 2
+ Cash (A) –
Jan. 1
10,000,000
5,000,000
Jan. 2
5,000,000
2. For the year ended December 31, 2016, Band Corp. earned $800,000 in net income. Prepare the
journal entry required to record this transaction and update the appropriate T-accounts:
Dec. 31
Investments in Affiliates (+A)
320,000
Equity in Affiliate Earnings (+R, +SE)
320,000
$800,000 × 40% = $320,000
+ Investments in Affiliates (A) –
Jan. 1
Jan. 2
Dec. 31
– Equity in Affiliate Earnings (R, SE) +
Dec. 31
3. On December 31, 2016, Band Corp. declared and paid $500,000 in dividends. Prepare the journal
entry required to record this transaction and update the appropriate T-accounts:
Dec. 31
Cash (+A)
200,000
Investments in Affiliates (-A)
200,000
$500,000 × 40% = $200,000
+ Investments in Affiliates (A) –
Jan. 1
Jan. 2
Dec. 31
Dec. 31
End Bal
+ Cash (A) –
Jan. 1
10,000,000
Dec. 31
200,000
5,000,000
Jan. 2
End Bal
5,200,000