Question

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Selk Steel Co., which began operations in Year 1, had the following transactions and events in...


Selk Steel Co., which began operations in Year 1, had the following transactions and events in its long-term investments.

Year 1

Jan. 5 Selk purchased 60,000 shares (20% of total) of Kildaire's common stock for $1,320,000.
Oct. 23 Kildaire declared and paid a cash dividend of $2.20 per share.
Dec. 31 Kildaire’s net income for the year is $1,164,000 and the fair value of its stock at December 31 is $30 per share.


Year 2

Oct. 15 Kildaire declared and paid a cash dividend of $3.10 per share.
Dec. 31 Kildaire’s net income for the year is $1,195,000 and the fair value of its stock at December 31 is $32 per share.


Year 3

Jan. 2 Selk sold 2% (equal to 1,200 shares) of its investment in Kildaire for $66,500 cash.

Required:
1. Assume that Selk has a significant influence over Kildaire with its 20% share of stock. Prepare the following journal entries to record these transactions and events for Selk:

Oct 15: Kildaire declared and paid a cash dividend of $3.10 per share.

Jan 02: Selk sold 2% (equal to 1,200 shares) of its investment in Kildaire for $66,500 cash.

2. Prepare the following journal entries for these transactions:

Dec 31: Kildaire's net income for the year is $1,164,000, and the fair value of its stock at December 31 is $30 per share.
Dec 31: Kildaire's net income for the year is $1,195,000, and the fair value of its stock at December 31 is $32 per share.

Jan 02: Selk sold 2%(equal to 1,200 shares) of its investment in Kildaire for $66,500 cash.

Solutions

Expert Solution

Selk has a significant influence over Kildaire
Jan-05 Investment in Kildaire $ 1,320,000
Cash $ 1,320,000
(to record purchase)
Oct-23 Cash $    132,000
Investment in Kildaire (60000*2.2) $    132,000
(to record receipt of dividend)
Dec-31 Investment in Kildaire $    232,800
Income in Kildaire $    232,800
1164000*20%
Oct-15 Cash $    186,000
Investment in Kildaire (60000*3.1) $    186,000
(to record receipt of dividend)
Dec-31 Investment in Kildaire $    239,000
Income in Kildaire $    239,000
1195000*20%
Jan-02 Cash $ 66,500
Gain on sale of investments $ 37,024
Investment in Kildaire $   29,476

(1,320,000-132,000+232800-186000+239,000)*2% =

$29,476

if any doubt please mention in comment

ekkarill92 answered 2 years ago
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