Question

Forte Inc. produces and sells theater set designs and costumes. The company began operations on January 1, 20Y6. The following transactions relate to securities acquired by Forte Inc., which has a fiscal year ending on December 31, 20Y6:

Jan.	10	Purchased an influential interest in Imboden Inc. for $720,000 by purchasing 96,000 shares directly from the estate of the founder of Imboden Inc. There are 300,000 shares of Imboden Inc. stock outstanding.
Dec.	31	Received $57,600 of cash dividends on Imboden Inc. stock. Imboden Inc. reported net income of $450,000 in 20Y6. Forte Inc. uses the equity method of accounting for its investment in Imboden Inc.

	Required:
1.	Journalize the entries to record these transactions. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will automatically indent a credit entry when a credit amount is entered.
2.	Should Forte Inc.’s investment in Imboden Inc. be reported at fair value on its financial statements for the year ending December 31, 20Y6?

Answer 1

1)
Date	Account Titles and Explanation	Debit	Credit
10-Jan	Investment in Imboden Inc.	$      720,000
	Cash		$      720,000
31-Dec	Cash	$        57,600
	Investment in Imboden Inc.		$        57,600
31-Dec	Investment in Imboden Inc.	$      144,000
	Income from Imboden inc.		$      144,000
	($450,000 x 96000/300,000 shares)
2)	Forte Inc.’s  investment in Imboden Inc. should not be reported at fair value on its financial statements for the year ending December 31, 20Y6 because it uses the equity method of accounting for its investment in Imboden Inc. representing 32% of the outstanding shares of Imboden Inc. (96000/300,000)

Investment in Imboden = ($720,00 -$57,00+14000)

$      806,400