Stock Investment Transactions, Equity Method and Available-for-Sale Securities R
ID: 2449490 • Letter: S
Question
Stock Investment Transactions, Equity Method and Available-for-Sale Securities Roman Products, Inc., is a wholesaler of men's hair products. The company began operations on January 1, 2014. The following transactions relate to securities acquired by Roman Products, Inc., which has a fiscal year ending on December 31: 2014 Jan. 3 Purchased 5,900 shares of Whalen Inc. as an available-for-sale security at $54 per share, including the brokerage commission. July 8 Received a cash dividend of $0.50 per share on the Whalen stock. Oct. 19 Sold 2,700 shares of Whalen Inc. stock at $57 per share, less a brokerage commission of $55. Dec. 12 A cash dividend of $0.50 per share was received on the Whalen stock. Dec. 31 Whalen Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $52 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment. 2015 Jan. 5 Purchased an influential interest in Tasmania Inc. for $770,000 by purchasing 48,000 shares directly from the estate of the founder of Tasmania Inc. There are 120,000 shares of Tasmania Inc. stock outstanding. July 9 Received a cash dividend of $0.60 per share on Whalen Inc. stock. Dec. 8 Received a cash dividend of $0.60 per share plus an extra dividend of $0.10 per share on Whalen Inc. stock. Dec. 31 Received $23,000 of cash dividends on Tasmania Inc. stock. Tasmania Inc. reported net income of $95,000 in 2015. Roman Products uses the equity method of accounting for its investment in Tasmania Inc. Dec. 31 Whalen Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $58 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the change in fair value from $52 to $58 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.
2. Prepare the investment-related asset and stockholders' equity balance sheet presentation for Roman Products, Inc., on December 31, 2015, assuming the Retained Earnings balance on December 31, 2015, is $562,000.
Explanation / Answer
Journal entries
To Dividend income
(5900*.50)
To Dividend income
(3200 *.50)
To dividend income
(3200 *.60
Income = $95,000 * 48,000/ 120,000 = $38,000
unrealsied holdin gain or loss
(58 - 52 = 6*3200=
Balance sheet
liabilities aAsset
retained earnings $646,360 investment in whalen inc e $145,800
Add: Allowance for valuation 12,700 $158,500
invesmtent in Tasmania $808,000
Date Description Debit Credit Jan 3 Investment in Whalen INC $318,600 To Cash $318,600 july 8 Cash $2950To Dividend income
(5900*.50)
$2950 Ocy 19 Cash $153,845 Loss on sale 18,955 To investment in Whalen inc $172,800 Dec 12 Cash $1600To Dividend income
(3200 *.50)
$1600 Dec 31 Unrealised holding gain or loss $6,400 Valuation allowance for vaialbale sale in securties $4,600 2015 Jan 5 invnestment in Tasmania inc $770,000 To Cash $770,000 july 9 Cash $1920To dividend income
(3200 *.60
$1920 dec 8 Cash $2240 to Dividend income $2240 Dec 31 Cash $23,000 To Dividend income $23,000Related Questions
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