Question

On July 1, 2018, The Shepard Company purchased the following securities: 500 debentures (6% interest) of Tatum Incorporated for $520,200 690 common shares of Cook Ltd. for $167,400 4,000 common shares of Green Co. for $504,900 850 preferred shares of Frisbee Corp. for $76,500 2,000 common shares of Kelly, Inc. for $212,700 Shepard acquired 5% of Kelly’s outstanding shares, 10% of Frisbee’s preferred stock, and 8% of Cook’s common stock. Shepard’s investment in Tatum’s securities will mature in nine years. Shepard’s acquisition of 24% of Green’s common shares resulted in its owning the largest single concentration of stock held by any of Green’s stockholders. On December 1, 2018, Kelly issued a 2-for-1 stock split. At December 31, 2018, Shepard had the following data for the companies in which it had invested: Investee Company Results for 2018 Market Value of Total Total Shepard’s Investment Name Net Income Dividends Paid In Each Company Kelly $5,030,000 $920,000 $258,300 Frisbee 4,010,000 870,000 62,800 Green 1,240,000 250,000 516,500 Cook 2,690,000 430,000 172,500 Tatum 3,370,000 680,000 618,600 Each investee company paid its dividend or interest in cash on December 31, 2018. Record the journal entries that Shepard made with regard to its investments at December 31, 2018.

Answer 1

Journal entries

	Journal entry	Debit	credit
1	Investment in 6% debentures of Tatum	520200
	To cash A/c cr		520200
	(Investment in 500 debentures)
2	Investment in common shares of Cook ltd.	167400
	To cash		167400
	(690 shared of Cook ltd)
3	Investment in common shares of Green com.	504900
	To cash		504900
	( Investment in 4000 shares)
4	Investment in Preferred shares of Frisbee Corporation	76500
	To cash		76500
	( 850 preferred shares )
5	Investment in common shares of Kelly Inc	212700
	To cash		212700
	(Investment in 2000 common shares
6	Kelly's stock split
	No journal entry required because no change in total par value of shares
7	Investment in common shares of Kelly	38800
	To unrealized gain on investment		38800
	( Total market value of Kelly is $5030000. 5% shares holding therefore value of investment=5%×5030000=251500. Increase in value of investment= 251500- 212700=38800
8	Investment in common shares of Kelly	46000
	To investment income		46000
	(5%× $920000=46000 share of profit )
9	Dividend	12915
	To Investment in common shares of kelly		12915
	(Dividend =5%×258300=12915)
10	investment in preferred stock of Frisbee	324500
	To unrealized gain on investment		324500
	(Market value of Frisbee=4010000. 10% holding therefore 10% × 4010000= 401000 Gain = 401000-76500=324500. (Preferred stock holder have both features of debt and equity. They are part owners
11	Investment in stock of Frisbee To Gain on investment (870000×10%	87000	- 87000
12	Dividend Investment in stock of frisbee	6280	- 6280
13	Unrealised loss on investment To investment in shares of Green (Total value of Green is 1240000. Value of investment is 24%× 1240000=297600. Unrealized loss= 297600-504900 =207300	207300	- 207300
13	Investment in common shares of green To gain on investment (250000× 24%= 60000)	60000	- - 60000
	Dividend To investment in common shares of green (24% ×516500)	123960	- 123960
15	Investment in common shares of cook To unrealized gain on investment (8%2690000= 215200 - 167400=47800	47800	- - 47800
	Investment in shares of Cook To gain in investment (Profit is 430000, Gain =8%×430000= 34400	34400	- 34400
	Dividend To investment in shares of Cook (Dividend by Cook =172500, share of dividend=8%×172500=1380	13800	- 13800
	Investment in 6% debentures of Tatum To interest on debentures (6% interest on 520200 for 6 months= 6%×520200 ×6/12 = 15606)	15606	- - 15606