Question

Exercise 17-16 Blue Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2017. The purchase price was $1,178,400 for 49,100 shares. Kulikowski Inc. declared and paid an $0.90 per share cash dividend on June 30 and on December 31, 2018. Kulikowski reported net income of $702,000 for 2018. The fair value of Kulikowski’s stock was $27 per share at December 31, 2018. Assume that the security is a trading security. Prepare the journal entries for Blue Inc. for 2017 and 2018, assuming that Blue 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.) SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT Prepare the journal entries for Blue Inc. for 2017 and 2018, assuming that Blue 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.) SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2018? What is the total net income reported in 2018 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) DR Equity investments: $1,178,400
   CR Cash: $1,178,400

DR Cash: $44,190
   CR Dividend Revenue: $44,190 June 31
   (49,100*.90)

(dividend earned)

DR Cash:    $44,190
   CR Dividend Revenue: $44,190 Dec 31
   (49,100*.90)

(dividend earned)
""

DR FVA    : $147300
   CR Unrealized holding gain or loss-equity: $147300
(49,100*27) -1,178,400

B)

DR Equity investments: $1,178,400
   CR Cash: $1,178,400

DR Cash:    $44,190
   CR Dividend Revenue: $44,190 June 31
   (49,100*.90)

(dividend earned)

DR Cash: $44,190
CR Dividend Revenue: $44,190 Dec 31
(49,100*.90)

(dividend earned)
""

DR Equity Investments: $140400
CR Revenue from investments: $140400
   (702000*0.2)

C) Investment amount-
Fair value method: $1,325,700 (49,100*27)
Equity method: $1,230,420 (1,178,400+140400-44,190-44,190)

Dividend Revenue-
Fair value method: $88,380 (44,190*2)
Equity method:0

Investment income (income statement)-
Fair value method:0
Equity method: $140400