Question

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Glacier Products Inc. is a wholesaler of rock climbing gear. The company began operations on January...

Glacier Products Inc. is a wholesaler of rock climbing gear. The company began operations on January 1, Year 1. The following transactions relate to securities acquired by Glacier Products Inc., which has a fiscal year ending on December 31:

Year 1
Jan. 18. Purchased 7,300 shares of Malmo Inc. as an available-for-sale investment at $36 per share, including the brokerage commission.
July 22. A cash dividend of $0.45 per share was received on the Malmo stock.
Oct. 5. Sold 2,200 shares of Malmo Inc. stock at $39 per share less a brokerage commission of $60.
Dec. 18. Received a regular cash dividend of $0.45 per share on Malmo Inc. stock.
Dec. 31 Malmo Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $33 per share.
Use the valuation allowance for available-for-sale investments account in making the adjustment.
Year 2
Jan. 25. Purchased an influential interest in Helsi Co. for $710,000 by purchasing 70,000 shares directly from the
estate of the founder of Helsi. There are 200,000 shares of Helsi Co. stock outstanding.
July 16. Received a cash dividend of $0.55 per share on Malmo Inc. stock.
Dec. 16. Received a cash dividend of $0.55 per share plus an extra dividend of $0.15 per share on Malmo Inc. stock.
Dec. 31 Received $21,000 of cash dividends on Helsi Co. stock. Helsi Co. reported net income of $86,000 in Year 2.
Glacier Products Inc. uses the equity method of accounting for its investment in Helsi Co.
Dec. 31 Malmo Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $39 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the increase in fair value from $33 to $39 per share.

Required:

1. Journalize the entries to record the preceding transactions. For a compound transaction, if an amount box does not require an entry, leave it blank. In your computations, round per share amounts to two decimal places.

Date Description Debit Credit
Year 1
Jan. 18. Investments-Malmo Inc.
Cash
July 22. Cash
Dividend Revenue
Oct. 5. Cash
Gain on Sale of Investments
Investments-Malmo Inc.
Dec. 18. Cash
Dividend Revenue
Dec. 31 Unrealized Gain (Loss) on Available-for-Sale Investments
Valuation Allowance for Available-for-Sale Investments
Year 2
Jan. 25. Investment in Helsi Co. Stock
Cash
July 16. Cash
Dividend Revenue
Dec. 16. Cash
Dividend Revenue
Dec. 31-Dividends Cash
Investment in Helsi Co. Stock
Dec. 31-Income Investment in Helsi Co. Stock
Income of Helsi Co.
Dec. 31-Valuation Valuation Allowance for Available-for-Sale Investments
Unrealized Gain (Loss) on Available-for-Sale Investments

2. Prepare the investment-related asset and stockholders’ equity balance sheet presentation for Glacier Products Inc. on December 31, Year 2, assuming that the Retained Earnings balance on December 31, Year 2, is $518,000.

Glacier Products, Inc.
Balance Sheet (selected items)
December 31, Year 2
Current Assets:
Available-for-Sale Investments (at Cost)
Plus Valuation Allowance for Available-for-Sale Investments
Available-for-Sale Investments (at Fair Value)
Investments:
Investment in Helsi Co. Stock
Stockholders' Equity:
Retained Earnings
Unrealized Gain (Loss) on Available-for-Sale Investments

Solutions

Expert Solution

Answer:

1.

Journal Entries:

No. Date General Journal Debit Credit
Year 1
1 Jan. 18. Investments - Malmo Inc 262,800
Cash 262,800
2 July 22. Cash 3,285
Dividend Revenue 3,285
3 Oct. 5. Cash 85,740
Gain on sale of investments 6,540
Investments - Malmo Inc 79,200
4 Dec. 18. Cash 2,295
Dividend revenue 2,295
5 Dec. 31 Unrealized gain (Loss) on Available for sale Investments 15,300
Valuation allowance for Available for sale investments 15,300
Year 2
6 Jan. 25. Investment in Helsi Co. Stock 710,000
Cash 710,000
7 July 16. Cash 2,805
Dividend revenue 2,805
8 Dec. 16. Cash 3,570
Dividend revenue 3,570
9 Dec. 31 Cash 21,000
Investment in Helsi Co. Stock 21,000
10 Dec. 31 Investment in Helsi Co. Stock 30,100
Income of Helsi Co. 30,100
11 Dec. 31 Valuation allowance for Available for sale investments 30,600
Unrealized gain (Loss) on Available for sale Investments 30,600

2.

Balance Sheet :

Glacier Products, Inc.
Balance Sheet (selected items)
December 31, Year 2
Current Assets:
Available-for-sale investments 183,600
Plus: Valuation Allowance for Available-for-Sale Investments 15,300
Available-for-Sale Investments (at Fair Value) 198,900
Investments:
Investment in Helsi Co. Stock 719,100
Stockholders' Equity:
Retained Earnings 518,000
Unrealized Gain (Loss) on Available-for-Sale Investments 15,300

Calculation:

1.

The calculation for the transactions provided:

Entry #1:

Investments - Malmo Inc = 7,300 x 36 = 262,800

Entry #2:

Dividend Revenue = 7,300 x 0.45 = 3,285

Entry #3:

Cash received = 2,200 x 39 - 60 = 85,740

Investments - Malmo Inc = 2,200 x 36 = 79,200

Gain on sale of investments = Cash received - Investments = 85,740 - 79,200 = 6,540

Entry #4:

Dividend Revenue = 7,300 - 2,200  x 0.45 = 2,295

Entry #5:

Unrealized gain (Loss) on Available for sale Investment = (7,300 - 2,200) x(36-33) = 15,300

Entry #7:

Dividend Revenue = 7,300 - 2,200  x 0.55 = 2,805

Entry #8:

Dividend Revenue = 7,300 - 2,200  x (0.55 - 0.15) = 3,570

Entry #10:

Investment in Helsi Co. Stock = 86,000 *(70,000 /200,000) = 30,100

Entry #11:

Unrealized gain (Loss) on Available for sale Investment = (7,300 - 2,200)*(39-33) = 30,600

2.

To prepare the investment-related asset and stockholders’ equity balance sheet presentation for Glacier Products Inc. The current assets include Available-for-sale investments, and then add year- 2 Valuation Allowance for Available-for-Sale Investments, to get the Available-for-Sale Investments (at Fair Value).

The Available-for-Sale Investments (at cost) = (7,300 - 2,200) x 36 = 183,600

Available-for-Sale Investments (at Fair Value) = (7,300 - 2,200) x 39 = 198,900

Investment in Helsi Co. Stock = 710,000 +310,000 - 21,000 = 719,100

Then, the stockholders equity includes, the Retained Earnings which is given in the question and the Unrealized Gain (Loss) on Available-for-Sale Investments of 15,300.


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