On January 1, 2011 The ACME Company made two investments: A) Purchased 200 of th
ID: 2533197 • Letter: O
Question
On January 1, 2011 The ACME Company made two investments:
A) Purchased 200 of the 2,000,000 shares of HAL for $20,000
B) Purchased 400 of the 1,000 shares of GZK for $40,000. At that this time the book value of GZK was $100,000.
In 2011 HAL paid dividends of $4,000,000 and reported income of $12,000,000.
On Decemer 31, HAL's stock was selling for $104 per share.
In 2011, GZK paid dividends of $800 and reported income of $2,800.
On December 31, GZK stock was selling for $98 per share.
On 3/1/12 ACME sold its' investment in HAL at $102 per share.
On 3/4/12 ACME sold its' investment in GZK at $101 per share.
REQUIRED: Prepare the journal entries needed by ACME in 2011 and 2012 if they have no influence over HAL and they have significant influence of GZK.
Note: ACME is a manufacturer so they would use available for sale rather than trading securities.
Explanation / Answer
Solution:
Journal Entries - Acme Company Date Particulars Debit Credit 1-Jan-11 Investment in HAL Dr $20,000.00 Investment in GZK Dr $40,000.00 To Cash $60,000.00 (Being investment in shares of HAL and GZK) 2011 Cash Dr (200*$2) $400.00 To Dividend Revenue $400.00 (Being dividend received from HAL) 2011 Investment in GZK Dr $1,120.00 To Investment income ($2,800*40%) $1,120.00 (Being share of income in associate enterprise recorded) 2011 Cash Dr ($800*40%) $320.00 To Investment in GZK $320.00 (Being dividend received from GZK) 31-Dec-11 Fair value adjustment Dr (200*$4) $800.00 To Unrealised holding gain or loss - OCI $800.00 (Being fair value adjustment on share of HAL company) 1-Mar-12 Cash Dr (200*$102) $20,400.00 Unrealized holding gain or loss - OCI Dr $800.00 To Investment in HAL $20,000.00 To Fair value adjustment $800.00 To Gain on sale of available for sale investment $400.00 (Being share in HAL sold and profit realized) 4-Mar-12 Cash Dr (400*$101) $40,400.00 Loss on sale of investment Dr $400.00 To Investment in GZK $40,800.00 (Being shares of GZK sold and loss recorded)Related Questions
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