Question

Stock Investment Transactions, Equity Method and Available-for-Sale Securities

Glacier Products Inc. is a wholesaler of rock climbing gear. The company began operations on January 1, Year 1. The following transactions relate to securities acquired by Glacier Products Inc., which has a fiscal year ending on December 31:

Year 1
Jan. 18.	Purchased 8,000 shares of Malmo Inc. as an available-for-sale security at $48 per share, including the brokerage commission.
July 22.	A cash dividend of $0.55 per share was received on the Malmo stock.
Oct. 5.	Sold 2,400 shares of Malmo Inc. stock at $53 per share, less a brokerage commission of $50.
Dec. 18.	Received a regular cash dividend of $0.55 per share on Malmo Inc. stock.
Dec. 31	Malmo Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $45 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment.
Year 2
Jan. 25.	Purchased an influential interest in Helsi Co. for $590,000 by purchasing 52,500 shares directly from the estate of the founder of Helsi Co. There are 150,000 shares of Helsi Co. stock outstanding.
July 16.	Received a cash dividend of $0.65 per share on Malmo Inc. stock.
Dec. 16.	Received a cash dividend of $0.65 per share plus an extra dividend of $0.15 per share on Malmo Inc. stock.
Dec. 31	Received $18,000 of cash dividends on Helsi Co. stock. Helsi Co. reported net income of $74,000 in Year 2. Glacier Products uses the equity method of accounting for its investment in Helsi Co.
Dec. 31	Malmo Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $52 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the increase in fair value from $45 to $52 per share.

Required:

1. Journalize the entries to record the preceding transactions. For a compound transaction, if an amount box does not require an entry, leave it blank. In your computations, round per share amounts to two decimal places.

Date	Description	Debit	Credit
Year 1
Jan. 18.
July 22.
Oct. 5.
Dec. 18.
Dec. 31
Year 2
Jan. 25.
July 16.
Dec. 16.
Dec. 31-Dividends
Dec. 31-Income
Dec. 31-Valuation

2. Prepare the investment-related asset and stockholders’ equity balance sheet presentation for Glacier Products Inc. on December 31, Year 2, assuming that the Retained Earnings balance on December 31, Year 2, is $431,000.

Glacier Products, Inc. Balance Sheet (selected items) December 31, Year 2
Current Assets:
Investments:
Stockholders' Equity:

Answer 1

(1).

Date	Accounts Titles & Explanation	Debit	Credit
Year – 1
Jan. 18	Investments-Malmo Inc. (8000 * $48)	$384000
	Cash		$384000
	(For recording purchase of available for sale securities)
July 22	Cash (8000 * $0.55)	$4400
	Dividend revenue		$4400
	(For recording dividend revenue on the securities of Malmo Inc.)
Oct. 22	Cash (2400 * $53) - $50	$127150
	Investments-Malmo Inc. (2400 * $48)		$115200
	Gain on sale of investment		$11950
	(For recording sale of investment and gain on sale)
Dec. 18	Cash (5600 * $0.55)	$3080
	Dividend revenue		$3080
	(For recording dividend revenue on the securities of Malmo Inc.)
Dec. 31	Unrealized holding loss on available for sale investments (5600 * $3)	$16800
	Valuation allowance for available for sale      Investments		$16800
Year – 2
Jan. 25	Investment in Helsi Co Stock	$590000
	Cash		$590000
	(For recording purchase of shares of Helsi Co.)
July 16	Cash (5600 * $0.65)	$3640
	Dividend revenue		$3640
	(For recording dividend revenue on the securities of Malmo Inc.)
Dec. 16	Cash (5600 * $0.80)	$4480
	Dividend revenue		$4480
	(For recording dividend revenue on the securities of Malmo Inc.)
Dec. 31	Cash	$18000
	Investment in Helsi Co. Stock		$18000
	(For recording receipts of cash dividends)
Dec. 31	Investment in Helsi Co. Stock ($74000 * 52000 / 150000)	$25653.33
	Equity in Helsi Co.’ Income		$25653.33
	(For recording share in net income)
Dec. 31	Valuation allowance for available for sale Investments	$39200
	Unrealized holding gain on available for sale      investments (5600 * $7)		$39200

(2).

Glacier Products, Inc.
Balance Sheet (selected items)
December 31, Year 2
Current Assets;
Available for sale investment (5600 * $48)	$268800
Add: Valuation allowance for available for sale Investments ($39200 - $16800)	$22400
Available for sale investment		$291200
Investments;
Investment in Helsi Co. Stock ($590000 + $25653.33 – $18000)		$597653.33
Shareholders’ equity;
Retained earnings	$431000
Unrealized gain on available for sale investment ($39200 - $16800)	$22400	$453400