Question

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys equity securities as noncurrent investments. None of Ornamental’s investments are large enough to exert significant influence on the investee. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020.

Mar.		31		Acquired Distribution Transformers Corporation common stock for $590,000.
Sep.		1		Acquired $1,185,000 of American Instruments' common stock.
Sep.		30		Received a $20,650 dividend on the Distribution Transformers common stock.
Oct.		2		Sold the Distribution Transformers common stock for $634,000.
Nov.		1		Purchased $1,590,000 of M&D Corporation common stock.
Dec.		31		Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are:

American Instruments common stock	$	1,116,000
M&D Corporation common stock	$	1,669,000

Required:
1. Prepare the appropriate journal entry for each transaction or event during 2021, as well as any adjusting entries necessary at year-end.
2. Indicate any amounts that Ornamental Insulation would report in its 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and retained earnings as a result of these investments.

Answer 1

Answer
Journal Entry
1)
Date	Particulars	Debit	Credit
Mar 31 2018	Investment in Distribution Transformers Stock	$    5,90,000
	Cash		$    5,90,000
Sep 1 2018	Investment in American instruments Stock	$ 11,85,000
	Cash		$ 11,85,000
Sep 30 2018	Cash	$       20,650
	Dividend Revenue		$       20,650
Oct 2 2018	Fair value adjustment	$       44,000
	Unrealized holding gain-NI ($634,000-$590,000)		$       44,000
	(To record adjustment to fair value)
Oct 2 2018	Cash	$    6,34,000
	Investment in Distribution Transformers Stock		$    5,90,000
	Fair value adjustment		$       44,000
	(To record sale of investment)
Nov 1 2018	Investment in M&D corporation Stock	$ 15,90,000
	Cash		$ 15,90,000
Dec 31 2018	Fair value adjustment (1185000-116000)+(1669000-1590000)	$       10,000
	Unrealized holding gain-NI		$       10,000
	(To record fair value adjustment)
		Cost	Fair Value	Unrealized Gain/(Loss)
Working	M&D Corporation	$ 15,90,000	$ 16,69,000	$      79,000
	American Instrument Bond	$ 11,85,000	$ 11,16,000	$     -69,000
	Total	$ 27,75,000	$ 27,85,000	$      10,000
2)	Income Statement:
	Dividend Revenue	$       20,650
	Unrealized holding gain on investment	$       10,000
	Gain on Sale of investment	$       44,000
	Net Income	$       74,650
	Statement of comprehensive income:
	Net Income	$       74,650
	Other comprehensive income	$                  -
	Comprehensive income	$       74,650
	Balance Sheet:
	Trading Securities	$ 27,75,000
	add: Fair value adjustment	$       10,000	$ 27,85,000
	Shareholder's Equity:
	Retained Earnings		$       74,650