Question

In: Accounting

On December 31, 2017, Turnball Associates owned the following securities, held as a long-term investment. The...

On December 31, 2017, Turnball Associates owned the following securities, held as a long-term investment. The securities are not held for influence or control of the investee.

Common Stock

Gehring Co. Wooderson Co. Kitselton Co.

Shares

2,000 5,000 1,500

Cost

$60,000 45,000 30,000

On December 31, 2017, the total fair value of the securities was equal to its cost. In 2018, the following transactions occurred.

Aug. 1 Sept. 1 Oct. 1 Nov. 1 Dec. 15

31

Received $0.50 per share cash dividend on Gehring Co. common stock. Sold 1,500 shares of Wooderson Co. common stock for cash at $8 per share. Sold 800 shares of Gehring Co. common stock for cash at $33 per share. Received $1 per share cash dividend on Kitselton Co. common stock. Received $0.50 per share cash dividend on Gehring Co. common stock. Received $1 per share annual cash dividend on Wooderson Co. common stock.

At December 31, the fair values per share of the common stocks were: Gehring Co. $32, Wooderson Co. $8, and Kitselton Co. $18.

Instructions

(a) Journalize the 2018 transactions and post to the account Stock Investments. (Use the T-account form.)

(b) Prepare the adjusting entry at December 31, 2018, to show the securities at fair value. The stock should be classified as available-for-sale securities.

(c) Show the balance sheet presentation of the investments at December 31, 2018. At this date, Turnball Associates has common stock $1,500,000 and retained earnings $1,000,000.

Expert Solution

(a)	Date	Account			Debit	Credit
	Aug 1.	Cash	(2000*0.50)		1000
		Dividend revenue				1000
		(Received cash dividend on Gehring Co. common stock)
	Sept 1.	Cash	(1500*8)		12000
		Loss on sale of stock investments			1500
		Stock investments		[1500*(45000/5000)]		13500
		(Sold 1,500 shares of Wooderson Co. common stock for cash)
	Oct 1.	Cash	(800*33)		26400
		Gain on sale of stock investments				2400
		Stock investments		[800*(60000/2000)]		24000
		( Sold 800 shares of Gehring Co. common stock)
	Nov 1.	Cash	(1500*1)		1500
		Dividend revenue				1500
		(Received $1 per share cash dividend on Kitselton Co. common stock)
	Dec 15.	Cash	(1200*0.50)		600
		Dividend revenue				600
		(Received cash dividend on Gehring Co. common stock)
	Dec 31.	Cash	(3500*1)		3500
		Dividend revenue				3500
		(Received cash dividend on Wooderson Co. common stock)

			Stock investments
	Date	Particulars			Debit	Date	Particulars	Credit
	Jan 1.	Balance			135000	Sept 1.	Cash	12000
							Loss on sale of stock investments	1500
						Oct 1.	Cash	24000
						Dec 31.	Balance	97500
					135000			135000

(b)	Date	Particulars			Debit	Credit
	Dec 31.	Unrealized gain or loss-Equity			4100
		Market adjustment-Available for sale				4100

	Security				Cost	Fair value
	Gehring Co.				36000	38400
					(1200*30)	(1200*32)
	Wooderson Co.				31500	28000
					(3500*9)	(3500*8)
	Kitselton Co.				30000	27000
					(1500*20)	(1500*18)
					97500	93400	4100

©			Balance sheet
	Investment:
	Stock investments					93400

	Stockholder's equity:
	Common stock				150000
	Retained earnings				100000
	Less: unrealized loss on available for sale securities				-4100
	Total stockholder's equity					245900

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