Question

In: Accounting

Use the following information for the Problems below. [The following information applies to the questions displayed...

Use the following information for the Problems below.

[The following information applies to the questions displayed below.]

Selk Steel Co., which began operations in Year 1, had the following transactions and events in its long-term investments.

Year 1

Jan. 5 Selk purchased 50,000 shares (20% of total) of Kildaire's common stock for $1,500,000.
Oct. 23 Kildaire declared and paid a cash dividend of $2.40 per share.
Dec. 31 Kildaire’s net income for the year is $1,112,000 and the fair value of its stock at December 31 is $34 per share.


Year 2

Oct. 15 Kildaire declared and paid a cash dividend of $3.30 per share.
Dec. 31 Kildaire’s net income for the year is $1,166,000 and the fair value of its stock at December 31 is $37 per share.


Year 3

Jan. 2 Selk sold 2% (equal to 1,000 shares) of its investment in Kildaire for $68,000 cash.

Problem 15-6A Accounting for long-term investments in stock without significant influence LO P4

Assume that although Selk owns 20% of Kildaire’s outstanding stock, circumstances indicate that it does not have a significant influence over the investee.

Required:
1. Prepare journal entries to record the preceding transactions and events for Selk.

Solutions

Expert Solution

1.) Date Account Titles Debit $ Credit $
Year 1
Jan.5 Investment in Kildaire's Common Stock        1,500,000
Cash        1,500,000
Oct.23 Cash          120,000
Dividend Revenue ( 50,000 x 2.40 )          120,000
Dec.31 Investment in Kildaire's Common Stock          200,000
Unrealized holding Gain or Loss          200,000
( 50,000 x 34 ) - 1,500,000
Year 2
Oct.15 Cash          165,000
Dividend Revenue ( 50,000 x 3.30 )          165,000
Dec.31 Investment in Kildaire's Common Stock          150,000
Unrealized holding Gain or Loss          150,000
( 50,000 x 37 ) - 1,700,000
Year 3
Jan.2 Cash             68,000
Unrealized holding Gain or Loss                7,000
( 350,000 x 2% )
Investment in Kildaire's Common Stock             37,000
(50,000 x 37 ) x 2%
Gain on Sale of long term investment             38,000

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