Question

Forte Inc. produces and sells theater set designs and costumes. The company began operations on January 1, Year 1. The following transactions relate to securities acquired by Forte Inc., which has a fiscal year ending on December 31:

Record these transactions on page 10:

Year 1
Jan.	22	Purchased 22,000 shares of Sankal Inc. as an available-for-sale security at $18 per share, including the brokerage commission.
Mar.	8	Received a cash dividend of $0.22 per share on Sankal Inc. stock.
Sep.	8	A cash dividend of $0.25 per share was received on the Sankal stock.
Oct.	17	Sold 3,000 shares of Sankal Inc. stock at $16 per share less a brokerage commission of $75.
Dec.	31	Sankal Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $25 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment.

Record these transactions on page 11:

Year 2
Jan.	10	Purchased an influential interest in Imboden Inc. for $720,000 by purchasing 96,000 shares directly from the estate of the founder of Imboden Inc. There are 300,000 shares of Imboden Inc. stock outstanding.
Mar.	10	Received a cash dividend of $0.30 per share on Sankal Inc. stock.
Sep.	12	Received a cash dividend of $0.25 per share plus an extra dividend of $0.05 per share on Sankal Inc. stock.
Dec.	31	Received $57,600 of cash dividends on Imboden Inc. stock. Imboden Inc. reported net income of $450,000 in Year 2. Forte Inc. uses the equity method of accounting for its investment in Imboden Inc.
Dec.	31	Sankal Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $22 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the decrease in fair value from $25 to $22 per share.

	Required:
1.	Journalize the entries to record these transactions. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries.
2.	Prepare the investment-related asset and stockholders’ equity balance sheet presentation for Forte Inc. on December 31, Year 2, assuming that the Retained Earnings balance on December 31, Year 2, is $389,000. Refer to the Chart of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. “Less” or “Plus” will automatically appear if it is required. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Chart of Accounts

CHART OF ACCOUNTS
Forte Inc.
General Ledger
ASSETS 110 Cash 111 Petty Cash 120 Accounts Receivable 121 Allowance for Doubtful Accounts 131 Notes Receivable 132 Interest Receivable 141 Merchandise Inventory 145 Office Supplies 146 Store Supplies 151 Prepaid Insurance 161 Investments-Sankal Inc. 163 Investment in Imboden Inc. Stock 165 Valuation Allowance for Trading Investments 166 Valuation Allowance for Available-for-Sale Investments 181 Land 191 Store Equipment 192 Accumulated Depreciation-Store Equipment 193 Office Equipment 194 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 221 Notes Payable 231 Interest Payable 241 Salaries Payable 251 Sales Tax Payable EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Treasury Stock 332 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 350 Unrealized Gain (Loss) on Available-for-Sale Investments 351 Cash Dividends 352 Stock Dividends 390 Income Summary	REVENUE 410 Sales 611 Interest Revenue 612 Dividend Revenue 621 Income of Imboden Inc. 631 Gain on Sale of Investments 641 Unrealized Gain on Trading Investments EXPENSES 511 Cost of Merchandise Sold 512 Bad Debt Expense 515 Credit Card Expense 516 Cash Short and Over 520 Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Repairs Expense 534 Selling Expenses 535 Rent Expense 536 Insurance Expense 537 Office Supplies Expense 538 Store Supplies Expense 561 Depreciation Expense-Store Equipment 562 Depreciation Expense-Office Equipment 590 Miscellaneous Expense 710 Interest Expense 721 Loss of Imboden Inc. 731 Loss on Sale of Investments 741 Unrealized Loss on Trading Investments

Amount Descriptions

Amount Descriptions
Available-for-sale investments (at cost)
Available-for-sale investments (at fair value)
Net income
Net loss
Other comprehensive income (loss)
Other income (loss)
Trading investments (at cost)
Trading investments (at fair value)

Journal

1a. Journalize the entries to record Year 1 transactions. Be sure to enter the year as part of the date for the first entry on each page. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4
5
6
7
8
9
10
11

1b. Journalize the entries to record Year 2 transactions. Be sure to enter the year as part of the date for the first entry on each page. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries.

PAGE 11

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4
5
6
7
8
9
10
11
12

Balance Sheet

2. Prepare the investment-related asset and stockholders’ equity balance sheet presentation for Forte Inc. on December 31, Year 2, assuming that the Retained Earnings balance on December 31, Year 2, is $389,000. Refer to the Chart of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. “Less” or “Plus” will automatically appear if it is required. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Forte Inc.

Balance Sheet (selected items)

December 31, Year 2

1	Current assets:
2
3
4
5
6	Investments:
7
8
9	Stockholders’ equity:
10
11

Answer 1

Answer 1.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
Year 1
22-Jan	Investment in Sankal Inc. (AFS)	396,000.00		22,000 Shares X $18
	Cash		396,000.00	22,000 Shares X $18
	(record the purchase of Sankal Inc Shares)
8-Mar	Cash	4,840.00		22,000 Shares X $0.22
	Dividend Revenue		4,840.00	22,000 Shares X $0.22
	(record the dividend received)
8-Sep	Cash	5,500.00		22,000 Shares X $0.25
	Dividend Revenue		5,500.00	22,000 Shares X $0.25
	(record the dividend received)
17-Oct	Cash	47,975.00		3,000 Shares X $16 -$75
	Loss on sale of Investment	6,025.00		$54,000 - $47,925
	Investment in Sankal Inc. (AFS)		54,000.00	3,000 Shares X $18
	(record the sales of Sankal Inc shares)
31-Dec	Valuation allowance for AFS Investments	133,000.00		19,000 Shares X ($25 -$18)
	Unrealized Gain (Loss) on AFS Investments		133,000.00	19,000 Shares X ($25 -$18)
	(record the Fair value adjustment of AFS)
Year-2
10-Jan	Investment in Imboden Inc	720,000.00
	Cash		720,000.00
	(record the purchase of Imboden shares)
10-Mar	Cash	5,700.00		19,000 Shares X $0.30
	Dividend Revenue		5,700.00	19,000 Shares X $0.30
	(record the dividend received)
12-Sep	Cash	5,700.00		19,000 Shares X ($0.25 + $0.05)
	Dividend Revenue		5,700.00	19,000 Shares X ($0.25 + $0.05)
	(record the dividend received)
31-Dec	Cash	57,600.00
	Investment in Imboden Inc		57,600.00
	(record the dividend recd from Imboden Inc.)
31-Dec	Investment in Imboden Inc	144,000.00		$450,000 x 32%
	Equity Income of Imboden Inc.		144,000.00
	(record the share of net porfit)
31-Dec	Unrealized Gain (Loss) on AFS Investments	57,000.00		19,000 Shares X ($25 -$22)
	Valuation allowance for AFS Investments		57,000.00
	(record the Fair value adjustment of AFS)

Answer 2.
Forte Inc.
Balance Sheet
For the Year ended Dec 31, Year 2
Assets
Current Assets
Available for Sale Investment (at Cost)	342,000.00
Add: Valuation allowance for AFS Investments	76,000.00
Available for Sale Investment (at Fair Value)		418,000.00
Investments
Investments in Imboden Inc.		806,400.00
Stockholders' Equity
Retained Earnings		389,000.00
Unrealized Gain (Loss) on AFS Investments		76,000.00