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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

Solutions

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)

ekkarill92 answered 1 year ago
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