Question

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.

Answer 1

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