Selk Steel Co., which began operations on January 4, 2013, had the following sub

Question

Selk Steel Co., which began operations on January 4, 2013, had the following subsequent transactions and events in its long-term investments.

2013

Jan. 5 Selk purchased 50,000 shares (20% of total) of Kildaire's common stock for $1,600,000.

Oct . 23 Kildaire declared and paid a cash dividend of $5.00 per share.

Dec. 31 Kildaire's net income for 2013 is $1,344,000, and the fair value of its stock at December 31 is $33.50 per share.

2014

Oct. 15 Kildaire declared and paid a cash dividend of $3.90 per share.

Dec. 31 Kildaire's net income for 2014 is $1,656,000, and the fair value of its stock at December 31 is $34.50 per share.

2015

Jan. 2 Selk sold all of its investment in Kildaire for $1,895,000 cash.

    

Prepare journal entries to record these transactions and events for Selk

Compute the carrying (book) value per share of Selk’s investment in Kildaire common stock as reflected in the investment account on January 1, 2015.

Compute the net increase or decrease in Selk’s equity from January 5, 2013, through January 2, 2015, resulting from its investment in Kildaire.

Assume that although Selk owns 20% of Kildaire’s outstanding stock, circumstances indicate that it does not have a significant influence over the investee and that it is classified as an available-for-sale security investment.

Prepare journal entries to record the preceding transactions and events for Selk. Also prepare an entry dated January 2, 2015, to remove any balance related to the fair value adjustment.

Compute the cost per share of Selk’s investment in Kildaire common stock as reflected in the investment account on January 1, 2015.

Compute the net increase or decrease in Selk’s equity from January 5, 2013, through January 2, 2015, resulting from its investment in Kildaire.

Part 1 Assume that Selk has a significant influence over Kildaire with its 20% share of stock.

Explanation / Answer

Answer:

Part 2:

2013 Shares Ownership Cost 5-Jan 50,000 20% $1,600,000 23-Oct $250,000 $5.00 31-Dec $268,800 $1,344,000 2014 15-Oct $195,000 $3.90 31-Dec $331,200 $1,656,000 2015 2-Jan 50,000 20% $ 1,895,000 Cash Kildaire Equity 2013 Debit Credit Debit Credit Debit Credit 5-Jan L-T investments-Kildaire $1,600,000 $1,600,000 $1,600,000 Cash $1,600,000 23-Oct Cash $250,000 $250,000 $250,000 L-T investments-Kildaire $250,000 31-Dec L-T investments-Kildaire $268,800 $268,800 $ 268,800 Earnings from L-T investment $268,800 $250,000 $1,600,000 $1,868,800 $250,000 2014 15-Oct Cash $195,000 $195,000 $195,000 L-T investments-Kildaire $195,000 31-Dec L-T investments-Kildaire $331,200 $331,200 $ 331,200 Earnings from L-T investment $331,200 $195,000 $0 $2,200,000 $445,000 2015 2-Jan Cash $1,895,000 $1,895,000 $1,755,000 $140,000 Gain on sale of investment $140,000 L-T investments-Kildaire $1,895,000 $2,340,000 $1,600,000 $2,200,000 $2,200,000 $0 $740,000 $740,000 $0 $740,000 $35.10

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