Question

Forte Inc. produces and sells theater set designs and costumes. The company began operations on January 1, Year 1. The following transactions relate to securities acquired by Forte Inc., which has a fiscal year ending on December 31:

Record these transactions on page 10:

Year 1

Jan.22Purchased 23,600 shares of Sankal Inc. as an available-for-sale security at $18 per share, including the brokerage commission.

Mar.8Received a cash dividend of $0.21 per share on Sankal Inc. stock.

Sep.8A cash dividend of $0.24 per share was received on the Sankal stock.

Oct.17Sold 4,700 shares of Sankal Inc. stock at $15 per share less a brokerage commission of $60.

Dec.31Sankal Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $26 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment.

Record these transactions on page 11:

Year 2

Jan.10Purchased an influential interest in Imboden Inc. for $1,287,000 by purchasing 165,000 shares directly from the estate of the founder of Imboden Inc. There are 500,000 shares of Imboden Inc. stock outstanding.

Mar.10Received a cash dividend of $0.29 per share on Sankal Inc. stock.

Sep.12Received a cash dividend of $0.24 per share plus an extra dividend of $0.06 per share on Sankal Inc. stock.

Dec.31Received $56,400 of cash dividends on Imboden Inc. stock. Imboden Inc. reported net income of $489,800 in Year 2. Forte Inc. uses the equity method of accounting for its investment in Imboden Inc.

Dec.31Sankal Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $21 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the decrease in fair value from $26 to $21 per share.

Required:

1.Journalize the entries to record these transactions. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries.

2.Prepare the investment-related asset and stockholders’ equity balance sheet presentation for Forte Inc. on December 31, Year 2, assuming the Retained Earnings balance on December 31, Year 2, is $376,000. Refer to the Chart of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. “Less” or “Plus” will automatically appear if it is required. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

CHART OF ACCOUNTS
Forte Inc.
General Ledger
ASSETS 110 Cash 111 Petty Cash 120 Accounts Receivable 121 Allowance for Doubtful Accounts 131 Notes Receivable 132 Interest Receivable 141 Merchandise Inventory 145 Office Supplies 146 Store Supplies 151 Prepaid Insurance 161 Investments-Sankal Inc. 163 Investment in Imboden Inc. Stock 165 Valuation Allowance for Trading Investments 166 Valuation Allowance for Available-for-Sale Investments 181 Land 191 Store Equipment 192 Accumulated Depreciation-Store Equipment 193 Office Equipment 194 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 221 Notes Payable 231 Interest Payable 241 Salaries Payable 251 Sales Tax Payable EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Treasury Stock 332 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 350 Unrealized Gain (Loss) on Available-for-Sale Investments 351 Cash Dividends 352 Stock Dividends 390 Income Summary	REVENUE 410 Sales 611 Interest Revenue 612 Dividend Revenue 621 Income of Imboden Inc. 631 Gain on Sale of Investments 641 Unrealized Gain on Trading Investments EXPENSES 511 Cost of Merchandise Sold 512 Bad Debt Expense 515 Credit Card Expense 516 Cash Short and Over 520 Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Repairs Expense 534 Selling Expenses 535 Rent Expense 536 Insurance Expense 537 Office Supplies Expense 538 Store Supplies Expense 561 Depreciation Expense-Store Equipment 562 Depreciation Expense-Office Equipment 590 Miscellaneous Expense 710 Interest Expense 721 Loss of Imboden Inc. 731 Loss on Sale of Investments 741 Unrealized Loss on Trading Investments

Forte Inc. produces and sells theater set designs and costumes. The company began operations on January 1, Year 1. The following transactions relate to securities acquired by Forte Inc., which has a fiscal year ending on December 31:

Record these transactions on page 10:

Year 1
Jan.	22	Purchased 23,600 shares of Sankal Inc. as an available-for-sale security at $18 per share, including the brokerage commission.
Mar.	8	Received a cash dividend of $0.21 per share on Sankal Inc. stock.
Sep.	8	A cash dividend of $0.24 per share was received on the Sankal stock.
Oct.	17	Sold 4,700 shares of Sankal Inc. stock at $15 per share less a brokerage commission of $60.
Dec.	31	Sankal Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $26 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment.

Record these transactions on page 11:

Year 2
Jan.	10	Purchased an influential interest in Imboden Inc. for $1,287,000 by purchasing 165,000 shares directly from the estate of the founder of Imboden Inc. There are 500,000 shares of Imboden Inc. stock outstanding.
Mar.	10	Received a cash dividend of $0.29 per share on Sankal Inc. stock.
Sep.	12	Received a cash dividend of $0.24 per share plus an extra dividend of $0.06 per share on Sankal Inc. stock.
Dec.	31	Received $56,400 of cash dividends on Imboden Inc. stock. Imboden Inc. reported net income of $489,800 in Year 2. Forte Inc. uses the equity method of accounting for its investment in Imboden Inc.
Dec.	31	Sankal Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $21 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the decrease in fair value from $26 to $21 per share.

	Required:
1.	Journalize the entries to record these transactions. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries.
2.	Prepare the investment-related asset and stockholders’ equity balance sheet presentation for Forte Inc. on December 31, Year 2, assuming the Retained Earnings balance on December 31, Year 2, is $376,000. Refer to the Chart of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. “Less” or “Plus” will automatically appear if it is required. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

X

Chart of Accounts

CHART OF ACCOUNTS
Forte Inc.
General Ledger
ASSETS 110 Cash 111 Petty Cash 120 Accounts Receivable 121 Allowance for Doubtful Accounts 131 Notes Receivable 132 Interest Receivable 141 Merchandise Inventory 145 Office Supplies 146 Store Supplies 151 Prepaid Insurance 161 Investments-Sankal Inc. 163 Investment in Imboden Inc. Stock 165 Valuation Allowance for Trading Investments 166 Valuation Allowance for Available-for-Sale Investments 181 Land 191 Store Equipment 192 Accumulated Depreciation-Store Equipment 193 Office Equipment 194 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 221 Notes Payable 231 Interest Payable 241 Salaries Payable 251 Sales Tax Payable EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Treasury Stock 332 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 350 Unrealized Gain (Loss) on Available-for-Sale Investments 351 Cash Dividends 352 Stock Dividends 390 Income Summary	REVENUE 410 Sales 611 Interest Revenue 612 Dividend Revenue 621 Income of Imboden Inc. 631 Gain on Sale of Investments 641 Unrealized Gain on Trading Investments EXPENSES 511 Cost of Merchandise Sold 512 Bad Debt Expense 515 Credit Card Expense 516 Cash Short and Over 520 Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Repairs Expense 534 Selling Expenses 535 Rent Expense 536 Insurance Expense 537 Office Supplies Expense 538 Store Supplies Expense 561 Depreciation Expense-Store Equipment 562 Depreciation Expense-Office Equipment 590 Miscellaneous Expense 710 Interest Expense 721 Loss of Imboden Inc. 731 Loss on Sale of Investments 741 Unrealized Loss on Trading Investments

X

Amount Descriptions

Amount Descriptions
Available-for-sale investments (at cost)
Available-for-sale investments (at fair value)
Net income
Net loss
Other comprehensive income (loss)
Other income (loss)
Trading investments (at cost)
Trading investments (at fair value)

Answer 1

Part 1.

Year 1

(a) Jan 22

Investments- Sankal Inc Dr. 424,800 [23,600 x 18]

To cash 424,800

(b) Mar 8

Cash Dr. 4,956 [23,600 x 0.21]

To dividend revenue 4,956

(c) Cash Dr. 5,664

To dividend revenue 5,664

(d) Oct 17

Cash Dr. 70,440 [(4,700 x 15) - 60]

Loss on sale of investments 14,160

To investments- Sankal Inc 84,600 [4,700 x 18]

(e) Dec 31

Valuation allowance for available for sale investments Dr. 151,200 [(23,600 - 4,700) x (26 - 18)]

To unrealized gain (loss) on available for sale investments 151,200

Year 2

(a) Jan 10

Investment in Imboden Inc stock Dr. 1,287,000

To cash 1,287,000

(b) Mar 10

Cash Dr. 5,481

To dividend revenue 5,481

(c) Sept 12

Cash Dr. 5,670

To dividend revenue 5,670 [18,900 x (0.24 + 0.06)]

(d) Dec 31

Cash Dr. 56,400

To investment in Imboden Inc stock 56,400

(e) Dec 31

Investment in Imboden Inc stock Dr. 161,634

To Income of Imboden Inc 161,634

[489,800 x 165,000/ 500,000]

(f) Dec 31

Unrealized gain (loss) on available for sale investments Dr. 94,500

To valuation allowance for available for sale investments 94,500 [18,900 x (26 - 21)]

Part 2

Balance sheet

Current asset
Available for sale investment at cost (18,900 x 18)	340,200
Add: Valuation allowance for available for sale investments [151,200 - 94,500]	56,700
Available for sale investments at fair value		396,900
Investment
Investment in Imboden Stock [1,287,000 - 56,400 + 161,634]		1,392,234
Stockholders' Equity
Retained earnings		376,000
Unrealized gain (loss) on available for sale investments		56,700