Question

Complete the journal entries as necessary for both Part 1 and Part 2.

Part 1.

Transaction 1. On January 1st of 2020, Casey bought 10% of Apple Company’s 100,000 shares of outstanding common stock at $20 a share.

2. On December 31, 2020, Apple reported $40,000 of net income and paid $20,000 of dividends.

3. On December 31, 2020, the market price of the stock was $ 25 a share. Assume there was a zero balance in the fair value adjustment account.

Part 2. Complete the journal entries as required:

Transaction 4. On January 1st of 2020, Casey bought 30% of Apple Company’s 100,000 shares of outstanding common stock at $20 a share and has significant influence.

5. On December 31, 2020, Apple reported $40,000 of net income and paid $20,000 of dividends.

6. On December 31, 2020, the market price of the stock was $ 25 a share. Assume there was a zero balance in the fair value adjustment account before this transaction.

Answer 1

Part 1

Transaction	Date	Account Titles and Explanation	Debit	Credit
1	January 1, 2020	Equity investment	200000
		Cash (10% x 100000 = 10000 x $20)		200000
		(To record purchase of investment)
2	December 31, 2020	Cash (10% x $20000)	2000
		Dividend revenue		2000
		(To record dividends received)
3	December 31, 2020	Fair value adjustment [10000 x ($25 - $20)]	50000
		Unrealized holding gain or loss		50000
		(To record investment at market price)

Part 2

Transaction	Date	Account Titles and Explanation	Debit	Credit
4	January 1, 2020	Equity investment	600000
		Cash (30% x 100000 = 30000 x $20)		600000
		(To record purchase of investment)
5	December 31, 2020	Equity investment (30% x $40000)	12000
		Investment revenue		12000
		(To record share in net income)
	December 31, 2020	Cash	6000
		Equity investment (30% x $20000)		6000
		(To record dividends received)
6	December 31, 2020	No journal entry required