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Problem 15-4A Accounting for long-term investments in securities; with and without significant influence LO P3, P4

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Selk Steel Co., which began operations on January 4, 2017, had the following subsequent transactions and events in its long-term investments.

2017

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 $3.50 per share.
Dec.	31	Kildaire's net income for 2017 is $1,234,000, and the fair value of its stock at December 31 is $30.70 per share.

2018

Oct.	15	Kildaire declared and paid a cash dividend of $3.00 per share.
Dec.	31	Kildaire's net income for 2018 is $1,546,000, and the fair value of its stock at December 31 is $32.70 per share.

2019

Jan.

2

Selk sold all of its investment in Kildaire for $1,800,000 cash.

Problem 15-4A Part 1

Part 1
Assume that Selk has a significant influence over Kildaire with its 25% share of stock.

Required:
1. Prepare journal entries to record these transactions and events for Selk. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Compute the carrying (book) value per share of Selk’s investment in Kildaire common stock as reflected in the investment account on January 1, 2019. (Round your answer to 1 decimal place.)

3. Compute the net increase or decrease in Selk’s equity from January 5, 2017, through January 2, 2019, resulting from its investment in Kildaire.

Answer 1

Answer 1.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
2017
Jan-05	Long Term Investment - Kildaire	1,200,000
	Cash		1,200,000
	(To record the purchase of Kildaire common stock - 50,000 shares)
Oct-23	Cash	175,000		50,000 Shares X $3.50
	Long Term Investment - Kildaire		175,000
	(To record the dividend received)
Dec-31	Long Term Investment - Kildaire	308,500		$1,234,000 X 25%
	Earnings from Long Term Investment		308,500
	(To record 25% equity in Kildaire' 2017 net income)
2018
Oct-15	Cash	150,000		50,000 Shares X $3
	Long Term Investment - Kildaire		150,000
	(To record the dividend received)
Dec-31	Long Term Investment - Kildaire	386,500		$1,546,000 X 25%
	Earnings from Long Term Investment		386,500
	(To record 25% equity in Kildaire' 2018 net income)
2019
Jan-02	Cash	1,800,000
	Long Term Investment - Kildaire		1,570,000
	Gain on Sale of Investment		230,000	$1,800,000 - $1,570,000
	(To record sale of 50,000 shares of Kildaire's)
	Calculation of Value of Investment
	Purchase Cost	1,200,000
	Less: Div. Recd - 2017	(175,000)
	Add: Net profit - 2017	308,500
	Less: Div. Recd - 2018	(150,000)
	Add: Net profit - 2018	386,500
	Carrying Value at the date of Sale	1,570,000
Answer 2.
	Calculation of Value of Investment
	Purchase Cost	1,200,000
	Less: Div. Recd - 2017	(175,000)
	Add: Net profit - 2017	308,500
	Less: Div. Recd - 2018	(150,000)
	Add: Net profit - 2018	386,500
	Carrying Value at the date of Sale - Jan 1, 2019	1,570,000
Answer 3.
	Value of Investment - Jan 1, 2019	1,570,000
	Cost of Investment - Jan 5, 2017	1,200,000
	Net Increase in Selk's Equity	370,000