Question

2.

Listed below are a few events and transactions of Kodax Company.

    

2013
Jan.	2		Purchased 34,000 shares of Grecco Co. common stock for $421,000 cash plus a broker’s fee of $4,300 cash. Grecco Co. has 85,000 shares of common stock outstanding and its policies will be significantly influenced by Kodax.
Sept.	1		Grecco declared and paid a cash dividend of $2.80 per share.
Dec.	31		Grecco announced that net income for the year is $506,400.

    

2014
June	1		Grecco declared and paid a cash dividend of $3.40 per share.
Dec.	31		Grecco announced that net income for the year is $732,900.
Dec.	31		Kodax sold 13,000 shares of Grecco for $385,000 cash.

    

Prepare journal entries to record the above transactions and events of Kodax Company. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field. Do not round intermediate calculations and round your final answers to the nearest dollar amount.)

4.

Required information

[The following information applies to the questions displayed below.]
   

Selk Steel Co., which began operations on January 4, 2013, had the following subsequent transactions and events in its long-term investments.

   

2013

Jan.	5	Selk purchased 50,000 shares (25% of total) of Kildaire's common stock for $1,200,000.
Oct .	23	Kildaire declared and paid a cash dividend of $4.40 per share.
Dec.	31	Kildaire's net income for 2013 is $1,284,000, and the fair value of its stock at December 31 is $31.20 per share.

  

2014

Oct.	15	Kildaire declared and paid a cash dividend of $3.30 per share.
Dec.	31	Kildaire's net income for 2014 is $1,596,000, and the fair value of its stock at December 31 is $33.20 per share.

2015
Jan.	2	Selk sold all of its investment in Kildaire for $1,642,000 cash.

Part 2

Assume that although Selk owns 25% 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, 2015, to remove any balance related to the fair value adjustment. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)

2.	Compute the cost per share of Selk’s investment in Kildaire common stock as reflected in the investment account on January 1, 2015.

3.	Compute the net increase or decrease in Selk’s equity from January 5, 2013, through January 2, 2015, resulting from its investment in Kildaire.

Answer 1

Answer to Question 1.

Date	General Journal	Debit	Credit
01/02/13	Long-term Investment	425,300
	Cash ($421,000 + $4,300)		425,300
09/01/13	Cash (34,000 * $2.80)	95,200
	Long-term Investment		95,200
12/31/13	Long-term Investment	202,560
	Earnings from Long-term Investment		202,560
06/01/14	Cash (34,000 * $3.40)	115,600
	Long-term Investment		115,600
12/31/14	Long-term Investment	293,160
	Earnings from Long-term Investment		293,160
12/314	Cash	385,000
	Gain on Sale -Long-term Investment		113,445
	Long-term Investment		271,555

Calculation:

December 31, 2013:

Earnings from Long-term Investment = $506,4000 * 34,000/ 85,000

Earnings from Long-term Investment = $202,560

December 31, 2014:

Earnings from Long-term Investment= $732,900* 34,000/ 85,000

Earnings from Long-term Investment = $293,160

​​​​Value of Long-term Investment on the date of Sale:

Value of Long-term Investment on the date of Sale = $425,300 - $95,200 + $202,560 - $115,600 + $293,160 = $710,220

Value of Investment sold = $710,220 * 13,000/ 34,000

Value of Investment sold = $271,555