Question

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys equity securities as noncurrent 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, 2020.

Mar.		31		Acquired Distribution Transformers Corporation common stock for $450,000.
Sep.		1		Acquired $975,000 of American Instruments' common stock.
Sep.		30		Received a $18,000 dividend on the Distribution Transformers common stock.
Oct.		2		Sold the Distribution Transformers common stock for $480,000.
Nov.		1		Purchased $1,450,000 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	$	920,000
M&D Corporation common stock	$	1,515,000

Required:
1. Prepare the appropriate journal entry for each transaction or event during 2021, as well as any adjusting entries necessary at year-end.
2. Indicate any amounts that Ornamental Insulation would report in its 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and retained earnings as a result of these investments.

Answer 1

Journal entries for the year 2020:

Date	Account title & explanation	Debit($)	credit($)
Mar 31	Investment in distributors transformers stock	450,000
	Cash		450,000
Sep 1	Investment in American instrument stock	975,000
	Cash		975,000
Sep 30	cash	18,000
	Dividend revenue		18,000
Oct 2	cash	480,000
	Distribution transformers stock		450,000
	Fair value adjustment		30,000
Oct 2	fair value adjustment	30,000
	Unrealized holding gain		30,000
Nov 1	Investment in M&D corporation stock	1,450,000
	Cash		1,450,000
Dec 31	Fair value adjustment (920,000-975,000)+(1,515,000+1,450,000)	10,000
	Unrealized holding gain		10,000

2).

Particulars	amount($)	amount($)
INCOME STATEMENT
Dividend revenue		18,000
Unrealized gain on investment sold(30,000+10,000)		40,000
Net income		58,000
STATEMENT OF COMPREHENSIVE INCOME
Net income		58,000
Other comprehensive income		0
Comprehensive income		58,000
BALANCE SHEET
Assets
Current assets
Cash (18,000+480,000-450,000-975,000-1,450,000)		2,377,000
Non current assets
Investmentinequity(975,000+1,450,000)	2,425,000
Add:fair value adjustment	10,000
Share holders equity		2,435,000
Retained earnings		58,000