Question

Flounder Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2020. The purchase price was $1,031,800 for 46,900 shares. Kulikowski Inc. declared and paid an $0.80 per share cash dividend on June 30 and on December 31, 2021. Kulikowski reported net income of $714,000 for 2021. The fair value of Kulikowski’s stock was $25 per share at December 31, 2021. Assume that the security is a trading security.

Prepare the journal entries for Flounder Inc. for 2020 and 2021, assuming that Flounder cannot exercise significant influence over Kulikowski. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit

	(To record dividend.)
	(To record fair value.)

eTextbook and Media

Prepare the journal entries for Flounder Inc. for 2020 and 2021, assuming that Flounder can exercise significant influence over Kulikowski. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit

	(To record dividend.)
	(To record revenue.)

eTextbook and Media

At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2021? What is the total net income reported in 2021 under each of these methods?

		Fair Value Method		Equity Method
Investment amount (balance sheet)		$		$
Dividend revenue (income statement)
Unrealized holding gain (income statement)
Investment income (income statement)

Answer 1

(a)
Date	Account titles and Explanation	Debit	Credit
December 31,2020	Equity investments	$ 1,031,800
	Cash		$ 1,031,800
	(To record the investment)
June 30,2021	Cash ( 46,900 Shares x $ 0.80)	$ 37,520
	Dividend Revenue		$ 37,520
	(To record the dividend paid)
December 31,2021	Cash ( 46,900 Shares x $ 0.80)	$ 37,520
	Dividend Revenue		$ 37,520
	(To record the dividend paid)
December 31,2021	Fair value adjustment ( $ 1,031,800 (-) ( 46,900 shares x $ 25)	$ 140,700
	Unrealized holding gain (or) Loss - Income		$ 140,700
	(To record the fair value Adjustment )

b)

Date	Account titles and Explanation	Debit	Credit
Dec 31,2020	Equity investments	$ 1,031,800
	Cash		$ 1,031,800
	(To record the investment)
June 30,2021	Cash ( 46,900 Shares x $ 0.80)	$ 37,520
	Equity investments		$ 37,520
	(To record the dividend )
Dec 31,2021	Cash ( 46,900 Shares x $ 0.80)	$ 37,520
	Equity investments		$ 37,520
	(To record the dividend )
Dec 31,2021	Equity investments ( $ 714,000 x 20%)	$ 142,800
	Investment Income		$ 142,800
	(To record revenue )

	Fait Value Method	Equity Method
Investment Amount	$ 1,172,500 ($ 25 x 46,900)	$ 813,960 ( $ 1,031,800 (-) $ 75,040 (-) $ 142,800)
Dividend Revenue	$ 75,040 ($ 37,520 x 2)	-
Unrealized holding gain	$ 140,700	-
Investment Income	$ 0	$ 142,800