Question

TamariskCompany has several investments in the securities of other companies. The following information regarding these investments is available at December 31, 2017.

1.		Tamarisk holds bonds issued by Dorsel Corp. The bonds have an amortized cost of $322,000 and their fair value at December 31, 2017, is $395,000. Tamarisk intends to hold the bonds until they mature on December 31, 2025.
2.		Tamarisk has invested idle cash in the equity securities of several publicly traded companies. Tamarisk intends to sell these securities during the first quarter of 2018, when it will need the cash to acquire seasonal inventory. These equity securities have a cost basis of $796,000 and a fair value of $920,000 at December 31, 2017.
3.		Tamarisk has a significant ownership stake in one of the companies that supplies Tamarisk with various components Tamarisk uses in its products. Tamarisk owns 6% of the common stock of the supplier, does not have any representation on the supplier's board of directors, does not exchange any personnel with the supplier, and does not consult with the supplier on any of the supplier's operating, financial, or strategic decisions. The cost basis of the investment in the supplier is $1,197,000 and the fair value of the investment at December 31, 2017, is $1,541,000. Tamarisk does not intend to sell the investment in the foreseeable future. The supplier reported net income of $80,000 for 2017 and paid no dividends.
4.		Tamarisk owns some common stock of Forter Corp. The cost basis of the investment in Forter is $208,000 and the fair value at December 31, 2017, is $58,000. Tamarisk believes the decline in the value of its investment in Forter is permanent and therefore impaired, but Tamarisk does not intend to sell its investment in Forter in the foreseeable future.
5.		Tamarisk purchased 25% of the stock of Slobbaer Co. for $886,000. Tamarisk has significant influence over the operating activities of Slobbaer Co. During 2017, Slobbaer Co. reported net income of $319,000 and paid a dividend of $115,000.

(b) Prepare any December 31, 2017, journal entries needed for Tamarisk relating to Tamarisk's various investments in other companies. Assume 2017 is Tamarisk’s first year of operations.

Answer 1

1.

As the tamarisk intends to hold the bonds until they mature on December 31, 2025 it seem as the long term investment and has to be shown at Amortised Cost hence it has to shown in books as 322000 $.

2.

Investment that are willing to sell in near furture are short term and must be valued at fair value.

Investment in Equity Debit	796000
Cash Credit	796000
Investment in Equity Debit	124000	(920000-796000)
Profit on revaluation Credit	124000

3.

As tamarisk did not intends to sell the investments in foreseeable future, so these are to be valued at cost

Cost of Investment in Supplier	1197000
Fair Value of Investment	1541000

Net Income of the supplier	80000
Share of Tamarisk	6%
Tamarisk share	4800	(80000*6%)
Investments has to be reduced by the same	1192200	(1197000-4800)

4.

Decline in investment is permanent so the loss should be provided for the reduced value

Even though tamarisk doesn’t intends to sell the decrease in the value is permanent

Investment in Forter	208000
Fair Value of Investments	58000
Reduce in the Value of Investments	150000

Loss on Investment Debit	150000	(208000-58000)
Investment in Foster Credit	150000

Dividend Paid	115000
Slobbaer Share of Dividend	28750	(115000*25%)
Investments value after adjusting the Dividend	857250