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Question 1: On January 1 2020 Potter Company purchased 100 of the 1000 shares of Voldomort...

Question 1: On January 1 2020 Potter Company purchased 100 of the 1000 shares of Voldomort Company for $800. Potter has no significant influence over Voldomort

On July 1, 2020 Voldomort declared and paid a $1 per share dividend

On December 31st Voldomort's stock was selling for $9 per share; Voldomort reported income of $4000

On January 1 2021 Potter Company purchased 300 shares of Voldomort Company for $2700. Potter now has two seats on the Voldomort Board of Directors

On March 1, Voldomort had a two for one stock split.

On July 1, Voldomort declared and paid a $1 per share dividend

On December 31st Voldomort reported income of $5000 and its stock was selling for $7 per share

On July 1, 2022 Voldomort announced that it will not pay a dividend in 2022.

On December 31st Voldomort reported a loss of $2000 and its stock was selling for $5 per share

On January 3rd 2023 Potter sold all of its shares in Voldomort at $5.50 per share

B) FILL IN THE FOLLOWING TABLE

	2020	2021	2022
Investment in Voldomort
income from investment in Voldomort

Expert Solution

Potter has no significant influence over Voldomort. Thus, this investment accounted using Fair value method.

Date	Account title	Debit	Credit
January 1 2020	Investment in Voldomort	800
	Cash		800
	(To record acquisition cost of investment.)

July 1, 2020	Cash	100
	Dividend income		100
	(To record Dividend Income.) (100*1)

December 31, 2020	No Journal entry Required for Net income.

December 31, 2020	Fair value investment [Investment in Voldomort]	100
	Unrealized holding gain - Net income		100
	(To record adjustment of Investment in fair value) ((9*100)-800)

Answer:	Year 2020
Investment in Voldomort (800+100)	900
Income from investment in Voldomort (100+100)	200

Potter has significant influence in BOD of Voldomort company. Potter has significant influence over Voldomort. Thus, this investment accounted using Equity value method.

Date	Account title	Debit	Credit
January 1 2021	Investment in Voldomort	2,700
	Cash		2,700
	(To record Purchase of Investment.) (shares = 100+300=400) (400/1000=40% share)

March 1, 2021	No entry for stock split (Shares = 400*2=800)

July 1, 2021	Cash	800
	Investment in Voldomort		800
	(To record Dividend Received.) (800*1)

December 31, 2021	Investment in Voldomort	2,000
	Income from Equity Investment		2,000
	(To record Income from Equity Investment. ) (5000*40%)

December 31, 2021	No Journal entry Required for Fair Value Adjustment.

Answer:	Year 2021
Investment in Voldomort ((900+2700)-800+2000)	4,800
Income from investment in Voldomort	2,000

Date	Account title	Debit	Credit
December 31, 2022	Loss from Equity Investment	800
	Investment in Voldomort		800
	(To record Income from Equity Investment. ) (2000*40%)

Answer:	Year 2022
Investment in Voldomort (4800-800)	4,000
Income (Loss) from investment in Voldomort	(800)

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