On December 31, 2017, Turnball Associates owned the following securities, held a

Question

On December 31, 2017, Turnball Associates owned the following securities, held as a long-term investment. The securities are not held for influence or control of the investee.

Common Stock

Gehring Co. Wooderson Co. Kitselton Co.

Shares

2,000 5,000 1,500

Cost

$60,000 45,000 30,000

On December 31, 2017, the total fair value of the securities was equal to its cost. In 2018, the following transactions occurred.

Aug. 1 Sept. 1 Oct. 1 Nov. 1 Dec. 15

31

Received $0.50 per share cash dividend on Gehring Co. common stock. Sold 1,500 shares of Wooderson Co. common stock for cash at $8 per share. Sold 800 shares of Gehring Co. common stock for cash at $33 per share. Received $1 per share cash dividend on Kitselton Co. common stock. Received $0.50 per share cash dividend on Gehring Co. common stock. Received $1 per share annual cash dividend on Wooderson Co. common stock.

At December 31, the fair values per share of the common stocks were: Gehring Co. $32, Wooderson Co. $8, and Kitselton Co. $18.

Instructions

(a) Journalize the 2018 transactions and post to the account Stock Investments. (Use the T-account form.)

(b) Prepare the adjusting entry at December 31, 2018, to show the securities at fair value. The stock should be classified as available-for-sale securities.

(c) Show the balance sheet presentation of the investments at December 31, 2018. At this date, Turnball Associates has common stock $1,500,000 and retained earnings $1,000,000.

Explanation / Answer

(a) Date Account Debit Credit Aug 1. Cash (2000*0.50) 1000 Dividend revenue 1000 (Received cash dividend on Gehring Co. common stock) Sept 1. Cash (1500*8) 12000 Loss on sale of stock investments 1500 Stock investments [1500*(45000/5000)] 13500 (Sold 1,500 shares of Wooderson Co. common stock for cash) Oct 1. Cash (800*33) 26400 Gain on sale of stock investments 2400 Stock investments [800*(60000/2000)] 24000 ( Sold 800 shares of Gehring Co. common stock) Nov 1. Cash (1500*1) 1500 Dividend revenue 1500 (Received $1 per share cash dividend on Kitselton Co. common stock) Dec 15. Cash (1200*0.50) 600 Dividend revenue 600 (Received cash dividend on Gehring Co. common stock) Dec 31. Cash (3500*1) 3500 Dividend revenue 3500 (Received cash dividend on Wooderson Co. common stock) Stock investments Date Particulars Debit Date Particulars Credit Jan 1. Balance 135000 Sept 1. Cash 12000 Loss on sale of stock investments 1500 Oct 1. Cash 24000 Dec 31. Balance 97500 135000 135000 (b) Date Particulars Debit Credit Dec 31. Unrealized gain or loss-Equity 4100 Market adjustment-Available for sale 4100 Security Cost Fair value Gehring Co. 36000 38400 (1200*30) (1200*32) Wooderson Co. 31500 28000 (3500*9) (3500*8) Kitselton Co. 30000 27000 (1500*20) (1500*18) 97500 93400 4100 © Balance sheet Investment: Stock investments 93400 Stockholder's equity: Common stock 150000 Retained earnings 100000 Less: unrealized loss on available for sale securities -4100 Total stockholder's equity 245900

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