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

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 5,900 shares of Malmo Inc. as an available-for-sale security at $42 per share, including the brokerage commission. July 22. A cash dividend of $0.65 per share was received on the Malmo stock. Oct. 5. Sold 1,800 shares of Malmo Inc. stock at $47 per share, less a brokerage commission of $35. Dec. 18. Received a regular cash dividend of $0.65 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 $40 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 45,500 shares directly from the estate of the founder of Helsi Co. There are 130,000 shares of Helsi Co. stock outstanding. July 16. Received a cash dividend of $0.75 per share on Malmo Inc. stock. Dec. 16. Received a cash dividend of $0.75 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 $46 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the increase in fair value from $40 to $46 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.

Explanation / Answer

Account Tittle Debit Credit 2018 01-Jan Investments-Malmo Inc.A/C (5900*$42) $247,800 To Cash A/C     $247,800 To Purchase Stock 22-Jul Cash A/C Dr. (5900*$0.65) $3,835 To Dividend Revenue A/C $3,835 To Receoved Dividend 05-Oct Cash A/C (2700X $47)-$35) $126,865 To Gain on Sale of Investments A/C   $13,465 To Investments-Malmo Inc. A/C (2700X$42) $113,400 To Recod sale of 2700 share 18-Dec Cash A/C Dr.($0.65*(5900-2700)) $2,080 To Dividend Revenue A/C $2,080 To Record received of Dividend 31-Dec Unrealized Gain (Loss) on Available-for-Sale Investments A/C (3200X($42-$40) $6,400 To Valuation Allowance for Available-for-Sale Investments A/C             $6,400 Year-2 25-Jan Investment in Helsi Co. Stock $590,000 To Cash $590,000 To Record invesment in Helsi Company 16-Jan Cash A/C Dr.(3200*$0.75+$0.15) $2,880 To Dividend Revenue A/C    $ 25,500 $2,880 To Record received of Dividend from Mamo Inc. 31-Dec Dividends Cash A/C Dr. $18,000 To Investment in Helsi Co. Stock A/C           $18,000 To Record Dividend received from Helsi Company Dec. 31-Income Investment in Helsi Co. Stock A/C Dr.($74000X45500/130000) $25,900         To Income of Helsi Co. A/C    $ 51,000 $25,900 To Record Share in Income of Helsi 31-Dec Valuation    Valuation Allowance for Available-for-Sale Investments A/C ($6*3600) $21,600            To Unrealized Gain (Loss) on Available-for-Sale Investments A/C $21,600

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