Question

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys equity securities as investments. None of Ornamental’s investments are large enough to exert significant influence on the investee. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017.

Mar. 31 Acquired Distribution Transformers Corporation common stock for $520,000.

Sep. 1 Acquired $1,080,000 of American Instruments' common stock.

Sep. 30 Received a $18,200 dividend on the Distribution Transformers common stock.

Oct. 2 Sold the Distribution Transformers common stock for $557,000.

Nov. 1 Purchased $1,560,000 of M&D Corporation common stock.

Dec. 31 Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are: American Instruments common stock $ 1,018,000 M&D Corporation common stock $ 1,640,000

Required: 1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end.

2. Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments.

Answer 1

Part 1:
Date	Account titles and explanations	Amount ($)	Amount ($)
31-Mar-18	Investment	520,000.00
	Bank		520,000.00
	(Being investment in common stock of Distribution transformation made)
01-Sep-18	Investment	1,080,000.00
	Bank		1,080,000.00
	(Being investment in common stock of American instruments)
30-Sep-18	Bank	18,200.00
	Dividend received		18,200.00
	(Being dividend received)
02-Oct-18	Bank	557,000.00
	Investment		520,000.00
	Profit on sale of investment (557000 - 520000)		37,000.00
	(Being investment sold)
01-Nov-18	Investment	1,560,000.00
	Bank		1,560,000.00
	(Being investment in common stock of M&D Corp. stock)
31-Dec-18	Dividend received	18,200.00
	Profit on sale of investment (557000 - 520000)	37,000.00
	Profit and loss account	`	55,200.00
	(Being profit and loss account adjusted)
	Investment (1640000 -1560000)	80,000.00
	Profit and loss account		80,000.00
	(Being appreciation in the value of shares of M&D Corp is recorded)
	Profit and loss account	62,000.00
	Investment (1080000 - 1018000)		62,000.00
	(Being diminution in the value of shares of American instruments is recorded)
Part 2
Following amounts would be reported in the income statement of 2018
Dividend received	18,200.00
Profit on sale of investment	37,000.00
Appreciation in the value of shares	80,000.00
	135,200.00
Less: Diminution in the value of investment	62,000.00
Net income from investment activities		73,200.00
Balance sheet (Extracts)
The investment in shares of American instruments shall be at	1,018,000.00
Investment in M&D corporation stock	1,640,000.00
	2,658,000.00