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:

Year 1
Jan. 18.	Purchased 7,300 shares of Malmo Inc. as an available-for-sale investment at $54 per share, including the brokerage commission.
July 22.	A cash dividend of $0.60 per share was received on the Malmo stock.
Oct. 5.	Sold 2,200 shares of Malmo Inc. stock at $58 per share less a brokerage commission of $50.
Dec. 18.	Received a regular cash dividend of $0.60 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 $52 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 $590,000 by purchasing 40,000 shares directly from the estate of the founder of Helsi. There are 100,000 shares of Helsi Co. stock outstanding.
July 16.	Received a cash dividend of $0.70 per share on Malmo Inc. stock.
Dec. 16.	Received a cash dividend of $0.70 per share plus an extra dividend of $0.15 per share on Malmo Inc. stock.
Dec. 31	Received $18,000 of cash dividends on Helsi Co. stock. Helsi Co. reported net income of $74,000 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 $58 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the increase in fair value from $52 to $58 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 $431,000.

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

Answer 1

Date	Description	Debit	Credit
Year 1
Jan. 18.	Investments-Malmo Inc.	$394,200
	Cash   (7300*54)		$394,200
July 22.	Cash	$    4,380
	Dividend Revenue   (7300*0.6)		$    4,380
Oct. 5.	Cash   (2200*58-50	$127,550
	Gain on Sale of Investments		$    8,750
	Investments-Malmo Inc.   (2200*54)		$118,800
Dec. 18.	Cash	$    3,060
	Dividend Revenue   ((7300-2200)*0.6)		$    3,060
Dec. 31	Unrealized Gain (Loss) on Available-for-Sale Investments	$ 10,200
	Valuation Allowance for Available-for-Sale Investments		$ 10,200
(7300-2200)*2
Year 2
Jan. 25.	Investment in Helsi Co. Stock	$590,000
	Cash		$590,000
July 16.	Cash	$ 28,000
	Dividend Revenue		$ 28,000
Dec. 16.	Cash	$ 28,765
	Dividend Revenue   (40000*0.7+5100*0.15)		$ 28,765
Dec. 31-Dividends	Cash	$ 18,000
	Investment in Helsi Co. Stock		$ 18,000
Dec. 31-Income	Investment in Helsi Co. Stock	$ 29,600
	Income of Helsi Co.   (74000*40%)		$ 29,600
Dec. 31-Valuation	Valuation Allowance for Available-for-Sale Investments	$ 30,600
	Unrealized Gain (Loss) on Available-for-Sale Investments		$ 30,600
5100*(58-52)

Glacier Products, Inc.
Balance Sheet (selected items)
December 31, Year 2
Current Assets:
Available-for-Sale Investments (at Cost) (5100*54)	$275,400
Plus Valuation Allowance for Available-for-Sale Investments (5100*4)	$ 20,400
Available-for-Sale Investments (at Fair Value)		$295,800
Investments:
Investment in Helsi Co. Stock (590000+29600-18000)		$601,600
Stockholders' Equity:
Retained Earnings		$431,000
Unrealized Gain (Loss) on Available-for-Sale Investments (5100*4)		$ 20,400