Question

Stock Investment Transactions, Equity Method and Available-for-Sale Securities

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:

1. Year 1
   Jan. 18.	Purchased 6,300 shares of Malmo Inc. as an available-for-sale investment at $48 per share, including the brokerage commission.
   July 22.	A cash dividend of $0.50 per share was received on the Malmo stock.
   Oct. 5.	Sold 2,800 shares of Malmo Inc. stock at $53 per share less a brokerage commission of $40.
   Dec. 18.	Received a regular cash dividend of $0.50 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 $45 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 $730,000 by purchasing 48,000 shares directly from the estate of the founder of Helsi. There are 120,000 shares of Helsi Co. stock outstanding.
   July 16.	Received a cash dividend of $0.60 per share on Malmo Inc. stock.
   Dec. 16.	Received a cash dividend of $0.60 per share plus an extra dividend of $0.15 per share on Malmo Inc. stock.
   Dec. 31	Received $22,000 of cash dividends on Helsi Co. stock. Helsi Co. reported net income of $90,000 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 $51 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the increase in fair value from $45 to $51 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.
   July 22.
   Oct. 5.
   Dec. 18.
   Dec. 31
   Year 2
   Jan. 25.
   July 16.
   Dec. 16.
   Dec. 31-Dividends
   Dec. 31-Income
   Dec. 31-Valuation

   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 $533,000.

   Glacier Products, Inc. Balance Sheet (selected items) December 31, Year 2
   Current Assets:
   Investments:
   Stockholders' Equity:

Answer 1

1.

Prepare Journal entries as follows:

Date	Account Titles	Debit	Credit
Year 1
Jan. 18	Investments-Malmo co. [6,300 shares × $48]	$302,400
	Cash		$302,400
July. 22	Cash [$6300 × $0.50]	$3,150
	Dividend Revenue		$3,150
Oct. 05	Cash [2800 shares × $53 ] - $40	$148,360
	Gain on sale of Investments		$13,960
	Investment [2800 shares × $48]		$134,400
Dec. 18	Cash [6300 - 2800] shares × $0.50	$1,750
	Dividend Revenue		$1,750
Dec. 31	Unrealized Gain (Loss) on Available-for-sale-investments	$10,500
	Valuation Allowance for Avilable-for-sale investments		$10,500
	[6300 - 2800] × ($48 - $45)
Year 2
Jan. 25	Investment-Helsi co.	$730,000
	Cash		$730,000
July. 16	Cash [6300 - 2800] shares × $0.60	$2,100
	Dividend Revenue		$2,100
Dec. 16	Cash [3,500 shares × ($0.60 + $0.15)]	$2,625
	Dividend Revenue		$2,625
Dec. 31	Cash	$22,000
	Investment in Helsi co.		$22,000
Dec. 31	Investment in Helsi co. [$90000 × 40%]	$36,000
	Income of Helsi co.		$36,000
Dec. 31	Valuation of Allowance-for-sale Investments [3500 shares × ($51- $45)]	$21,000
	Unrealized Gain (Loss) on Available-for-sale-investments		$21,000

____________________________________________________________________

2.

Current Assets:
Available-for-sale investment (at cost) [3500 × $48]	$168,000
Add: Valuation allowance for available-for-sale investments	$10,500
Available-for-sale investment (at fair value) [3500 × $51]		$178,500
Investments:
Investment in Helsi co. stock [$730000+ $36000 - $22000]		$744,000
Stockholders' equity
Retained Earnings		$533,000
Unrealized Gain (Loss) on Available-for-sale-investments		$10,500