Question

On January 1st 2016 the Snoke Company purchased 100 of the 1000 shares of The First Order Company stock for $6000 At this time Snoke has no influence over The First Order.

On July 1st The First Order paid a $1 per share dividend

On December 31st The First order reported income for 2016 of $5000 and its stock was selling for $63 per share

On January 2nd 2017 the Snoke Company purchased another 100 shares of The First Order stock for $6500 With this second purchase, Snoke now has significant influence over The First Order. Any excess of purchase price over book value of assets is attributable to goodwill.

On July 1st The First Order paid a $1 per share dividend

On December 31st The First Order reported income for 2017 of $9000 and its stock was selling for $61 per share

On July 1st 2018, The First Order announced that they were not paying any dividends this year

On December 31st The First Order reported a loss for 2018 of $4000 and its stock was selling for $58 per share

On January 3rd 2019 the Snoke Company sold 1/2 (100 shares) of its investment in The First Order at $59 per share. With this sale Snoke no longer has any influence over The First Order.

On July 1st The First Order paid a $2 per share dividend

On December 31st The First Order reported income of $1000 and its stock was selling for $57 per share

On January 5th 2020 the Snoke Company sold its remaining stock in The First Order at $58 per share.

REQUIRED:

A) PREPARE ALL THE NECESSARY JOURNAL ENTRIES FOR SNOKE IN 2016 THROUGH 2020

B) FOR EACH YEAR DETERMINE

1) THE BOOK VALUE OF THE INVESTMENT IN THE FIRST ORDER

2) THE BALANCE IN THE UNREALIZED HOLDING GAIN OR LOSS ACCOUNT (IS IT AN UNREALIZED GAIN OR LOSS)

3) THE INCOME STATEMENT IMPACT OF THE INVESTMENT

2016 2017 2018 2019

Investment in First Order

Unrealized holding gain/loss

Impact on income

Answer 1

1)January 1-2016 Investment A/C – Dr 6000

                             To Cash A/C -    6000

                           (being 10% investments purchased in Snoke company)

2)July 1^st .2016    Cash A/C – Dr 100

                          To Dividend A/C – 100

                       (being dividend received from investments in snoke company) Later on Credited to profit and loss A/C

3)January 2^nd 2017- Further 100stocks are purchased due to which the total holding increases to 20% which gives rise to significant influence. There would be an upward valuation of initial investment to 63$ per stock.

                    a) InvestmentsA/C – Dr 300

                    To profit and loss A/C 300

                    (being 100stocks initially purchased upward valued to $6300 from $6000)

                   b) Investments A/C –Dr 6500

                      To cash A/c-    6500

                 (being further investments purchased in snoke company)

4)July 1^st 2017 Cash A/C – Dr 200

                          To dividends A/c -200

                     (being dividend received from investments in snoke company) Later on Credited to profit and loss A/C

5) Dec31st 2017 Investments would be recorded at 61$ = 200*58= 12200

Currently investments are valued at 6300+6500= 12800

Downward valuation of (12800-12200)= 600

                       Profit and loss A/C – Dr 600

                      To Investments A/C – 600

                    (being investments downward valued)

6) Dec31st 2018 Investments would be recorded at 58$ = 200*58= 11600

Currently investments are valued at 12200

Downward valuation of (12200-11600)= 600

                       Profit and loss A/C – Dr 600

                      To Investments A/C – 600

                    (being investments downward valued)

7) January 3^rd 2019   Cash A/C –Dr 59*100=5900

                                     To Investments A/C 11600/2= 5800

                                     To Profit and loss A/c – (balancing fig)= 100

                                (being investments sold and profit recorded)

8) July 1^st 2019 Cash A/c – Dr 2*100=200

                          To dividend A/C – 200

                         ( being dividend received on 100shares held)

Date	Particulars		Amount	Gain/(loss) through p/L
Jan1,2016	Shares purchased	100	6000
31stdec2016	Fair value -63$		6300	300
Total		100	6300
Jan-17	Shares purchased	100	6500	-
Dec31st2017	Fair value-61	200	12200	-600
Total		200	12200
Dec31st2018	Fair value@58$	200	11600	-600
Total		200	11600
2019
	Fair valued @58	100	5800