Question

Sheffield Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2020. The purchase price was $1,320,800 for 50,800 shares. Kulikowski Inc. declared and paid an $0.90 per share cash dividend on June 30 and on December 31, 2021. Kulikowski reported net income of $755,000 for 2021. The fair value of Kulikowski’s stock was $29 per share at December 31, 2021. Assume that the security is a trading security.

Prepare the journal entries for Sheffield Inc. for 2020 and 2021, assuming that Sheffield cannot exercise significant influence over Kulikowski. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2020June 30, 2021Dec. 31, 2021
Dec. 31, 2020June 30, 2021Dec. 31, 2021
Dec. 31, 2020June 30, 2021Dec. 31, 2021
	(To record dividend.)
	(To record fair value.)

eTextbook and Media

List of Accounts

Prepare the journal entries for Sheffield Inc. for 2020 and 2021, assuming that Sheffield can exercise significant influence over Kulikowski. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2020June 30, 2021Dec. 31, 2021
Dec. 31, 2020June 30, 2021Dec. 31, 2021
Dec. 31, 2020June 30, 2021Dec. 31, 2021
	(To record dividend.)
	(To record revenue.)

eTextbook and Media

List of Accounts

At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2021? What is the total net income reported in 2021 under each of these methods?

		Fair Value Method		Equity Method
Investment amount (balance sheet)		$		$
Dividend revenue (income statement)
Unrealized holding gain (income statement)
Investment income (income statement)

Answer 1

Part-A: Sheffield Inc. -No Exercise Significant Influence
Date	Acount Titles	Debit	Credit
Dec 31,2020	Equity Investment	1,320,800
	Cash		1,200,000
Jun 30,2021	Cash (50,800x0.90)	45,720
	Dividend revenue		45,720
Dec 31,2021	Cash	45,720
	Dividend revenue		45,720
Dec 31,2018	Fair value adjustment	152400
	Unrealized holding gain or loss (50800*29-1320800)		152400
Part-B: Sheffield Inc. - Exercise Significant Influence
Date	Account Titles	Debit	Credit
Dec 31,2017	Equity investment	$1,320,800.00
	Cash		$1,320,800.00
June 30,2018	Cash (50,800x0.90)	$45,720.00
	Equity investment		$45,720.00
Dec 31,2018	Cash	$45,720.00
	Equity investment		$45,720.00
31-Dec-08	Equity investment	$151,000.00
	Investment income (7,55,000x20%)		$151,000.00

Part-2
	Fair Value Method	Equity method
Investment Amount	$1,473,200.00	$1,380,360.00
Dividend Revenue	$45,720.00
Unrealized Holding Gain	$152,400.00
Investment Income	$151,000.00	$151,000.00