Question

In: Accounting

Selk Steel Co., which began operations on January 4, 2017, had the following subsequent transactions and...

Selk Steel Co., which began operations on January 4, 2017, had the following subsequent transactions and events in its long-term investments.
   

2017

Jan. 5 Selk purchased 60,000 shares (20% of total) of Kildaire's common stock for $1,560,000.
Oct. 23 Kildaire declared and paid a cash dividend of $3.20 per share.
Dec. 31 Kildaire’s net income for 2017 is $1,164,000, and the fair value of its stock at December 31 is $30.00 per share.


2018

Oct. 15 Kildaire declared and paid a cash dividend of $2.60 per share.
Dec. 31 Kildaire’s net income for 2018 is $1,476,000, and the fair value of its stock at December 31 is $32.00 per share.


2019

Jan. 2 Selk sold all of its investment in Kildaire for $1,894,000 cash.

Problem 15-4A Part 2

Part 2
Assume that although Selk owns 20% of Kildaire’s outstanding stock, circumstances indicate that it does not have a significant influence over the investee and that it is classified as an available-for-sale security investment.

Required:
1. Prepare journal entries to record the preceding transactions and events for Selk. Also prepare an entry dated January 2, 2019, to remove any balance related to the fair value adjustment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Solutions

Expert Solution

Part 2
Date General Journal Debit Credit
01-05-17 Long term investments-AFS (kildaire) 1560000
   Cash 1560000
23-10-17 Cash 192000
   Dividend Revenue 192000
(60000*$3.20)
31-12-17 Fair value adjustment-AFS 240000
Unrealised gain-equity 240000
($30-$26)*60000 shares
15-10-18 Cash 156000
   Dividend Revenue 156000
(60000*$2.60)
31-12-18 Fair value adjustment-AFS 120000
Unrealised gain-equity 120000
($32-$30)*60000
02-01-19 Cash 1894000
   Gain on sale of investment 334000
   Long term investments-AFS (kildaire) 1560000
02-01-19 Unrealised gain-equity 360000
   Fair value adjustment-AFS 360000

ekkarill92 answered 9 months ago
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