Oriole Corp. was a 30% owner of Waterway Company, holding 216,000 shares of Wate

Question

Oriole Corp. was a 30% owner of Waterway Company, holding 216,000 shares of Waterway’s common stock on December 31, 2016. The investment account had the following entries.

Investment in Waterway

On January 2, 2017, Oriole sold 108,000 shares of Waterway for $3,400,000, thereby losing its significant influence. During the year 2017, Waterway experienced the following results of operations and paid the following dividends to Oriole.

Waterway
Income (Loss)

Dividends Paid
to Oriole

At December 31, 2017, the fair value of Waterway shares held by Oriole is $1,890,000. This is the first reporting date since the January 2 sale.
(b) Compute the carrying amount of the investment in Waterway as of December 31, 2017 (prior to any fair value adjustment).

c) Prepare the adjusting entry on December 31, 2017, applying the fair value method to Oriole’s long-term investment in Waterway Company securities. (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

Investment in Waterway

1/1/15 Cost $3,200,000 12/6/15 Dividend received $150,000 12/31/15 Share of income 380,000 12/5/16 Dividend received 250,000 12/31/16 Share of income 480,000

Explanation / Answer

b. Computation of Carrying amount of the investment in Nash as of Dec 31, 2017 Particular Amount Carrying Amount as on 31/12/2016 in Water ways as per books $36,60,000.00 ($3200000+$380000+$480000-$150000-$250000) Less: Amount Attributable to 108000 Share sold in 02 Jan 17 -$18,30,000.00 ($3660000*108000 Share/216000 Share) Balance carrying Amount as on 01/02/2017 $18,30,000.00 Less : cumulative excess dividends received over share of Nash earnings -$7,000.00 ($49000-($280000*15%)) Carrying Amount as on 31/12/2017 $18,23,000.00 c. Adjusting Entry Account Tittle & Explanation Debit Credit Fair Valuee Adjustment ( Available for Sale) $67,000.00 Unrealized Holding Gain or Loss $67,000.00 ($1890000-$1823000)

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