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:

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.
	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
HART 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

Answer 1

Part 1

Date	Account titles and explanation	Debit	Credit
Year 1
Jan. 22	Investments­-Sankal Inc.	424800
	Cash (23600*18)		424800
Mar. 8	Cash (23600*0.21)	4956
	Dividend Revenue		4956
Sept. 8	Cash (23600*0.24)	5664
	Dividend Revenue		5664
Oct. 17	Cash (4700*15)-60	70440
	Loss on Sale of Investments (balancing figure)	14160
	Investments­-Sankal Inc. (4700*18)		84600
Dec. 31	Valuation Allowance for Available­-for­-Sale Investments (18900*(26-18))	151200
	Unrealized Gain (Loss) on Available­-for­-Sale Investments		151200
Year 2
Jan. 10	Investment in Imboden Inc. Stock	1287000
	Cash		1287000
Mar. 10	Cash (18900*0.29)	5481
	Dividend Revenue		5481
Sept. 12	Cash (18900*(0.24+0.06))	5670
	Dividend Revenue		5670
Dec. 31 – dividends	Cash	56400
	Investment in Imboden Inc. Stock		56400
Dec. 31 - income	Investment in Imboden Inc. Stock	161634
	Income in Imboden Inc. (489800*(165000/500000))		161634
Dec. 31 – valuation	Unrealized Gain (Loss) on Available­-for­-Sale Investments	94500
	Valuation Allowance for Available­-for­-Sale Investments (18900*(21-26))		94500

23600-4700 = 18900

Part 2

Forte Inc. Balance Sheet (selected items) December 31, Year 2
Current Assets:
Available­-for­-Sale Investments (at Cost)	340200
Plus Valuation Allowance for Available­-for-­Sale Investments	94500
Available­-for-­Sale investments (at Fair Value)		434700
Investments:
Investment in Imboden Inc. Stock		1392234
Stockholders' Equity:
Retained Earnings		376000
Unrealized Gain (loss) on Available-­for­-Sale Investments		94500

18900*18 = 342000

1287000-56400+161634 =1392234