Question

Forte Inc. produces and sells theater set designs and costumes. The company began operations on January 1, 2016. The following transactions relate to securities acquired by Forte Inc., which has a fiscal year ending on December 31:

Record these transactions on page 10:

2016Jan.22Purchased 29,800 shares of Sankal Inc. as an available-for-sale security at $18 per share, including the brokerage commission.Mar.8Received a cash dividend of $0.20 per share on Sankal Inc. stock.Sep.8A cash dividend of $0.24 per share was received on the Sankal stock.Oct.17Sold 3,800 shares of Sankal Inc. stock at $16 per share, less a brokerage commission of $75.Dec.31Sankal Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $25 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment.

Record these transactions on page 11:

2017Jan.10Purchased an influential interest in Imboden Inc. for $468,000 by purchasing 60,000 shares directly from the estate of the founder of Imboden Inc. There are 200,000 shares of Imboden Inc. stock outstanding.Mar.10Received a cash dividend of $0.32 per share on Sankal Inc. stock.Sep.12Received a cash dividend of $0.24 per share plus an extra dividend of $0.06 per share on Sankal Inc. stock.Dec.31Received $61,600 of cash dividends on Imboden Inc. stock. Imboden Inc. reported net income of $449,600 in 2017. Forte Inc. uses the equity method of accounting for its investment in Imboden Inc.Dec.31Sankal Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $21 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the decrease in fair value from $25 to $21 per share.

Required:A. Journalize the entries to record these transactions. Be sure to enter the year as part of the date for the first entry on each page. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries.B. Prepare the investment-related asset and stockholders’ equity balance sheet presentation for Forte Inc. on December 31, 2017, assuming the Retained Earnings balance on December 31, 2017, is $405,000. Refer to the Chart of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. “Less” or “Plus” will automatically appear if it is required. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Answer 1

Journal entries
Date	Account Title and Explanation	Debit	Credit
2016
Jan-22	Available-for-sale Investments	536400
	Cash (29800 x $18)		536400
	(To record purchase of shares)
Mar-08	Cash (29800 x $0.20)	5960
	Dividend revenue		5960
	(To record cash dividend received from Sankal Inc.)
Sep-08	Cash (29800 x $0.24)	7152
	Dividend revenue		7152
	(To record cash dividend received from Sankal Inc.)
Oct-17	Cash [(3800 x $16) - $75]	60725
	Realized loss on sale of investments	7675
	Available-for-sale Investment (3800 x $18)		68400
	(To record sale of investment)
Dec-31	Valuation allowance for available for sale investment	182000
	Unrealized gain on Available-for-sale Investments		182000
	[(29800-3800) x ($25-$18)]
	(To record available-for-sale investments at fair value)
2017
Jan-10	Investment in Imboden Inc.	468000
	Cash		468000
	(To record purchase of shares in Imboden Inc.)
Mar-10	Cash (26000 x $0.32)	8320
	Dividend revenue		8320
	(To record cash dividend received from Sankal Inc.)
Sep-12	Cash (26000 x $0.30)	7800
	Dividend revenue		5670
	(To record cash dividend and extra dividend received from Sankal Inc.)
Dec-31	Cash	61000
	Investment in Imboden Inc.		61000
	(To record cash dividend received from Imboden Inc.)
Dec-31	Investment in Imboden Inc.	134880
	Equity income in Imboden Inc. (449600 x 60000/200000)		134880
	(To record share in net income of Imboden Inc.)
Dec-31	Unrealized loss on Available-for-sale Investments	104000
	Valuation allowance for available for sale investment		104000
	[(29800-3800) x ($25-$21)]
	(To record available-for-sale investments at fair value)