On March 31, 2018, Chow Brothers, Inc., bought 8% of KT Manufacturing’s capital
ID: 2545025 • Letter: O
Question
On March 31, 2018, Chow Brothers, Inc., bought 8% of KT Manufacturing’s capital stock for $50.3 million. KT’s net income for the year ended December 31, 2018, was $80.1 million. The fair value of the shares held by Chow was $35.2 million at December 31, 2018. KT did not declare or pay a dividend during 2018. Required: 1. Prepare all appropriate journal entries related to the investment during 2018. 2. Assume that Chow sold the stock on January 20, 2019 for $30.1 million. Prepare the journal entries to record the sale.
Explanation / Answer
Solution:
It is assumed that investment classified by Chow Brothers, Inc. under held for trading category.
Journal Entries - Chow Brother Inc. Date Particulars Debit (In million) Credit (In million) 31-Mar-18 Investment in KT manufacturing - Held for Trading Dr $50.30 To Cash $50.30 (Being share purchased of KT manufacturing) 31-Dec-18 Loss on investment - Held for Trading Dr $15.10 To Investment in KT manufacturing - Held for Trading $15.10 (Being fair value adjustment on held for trading investment) 20-Jan-19 Cash Dr $30.10 Loss on sale of investment Dr $5.10 To Investment in KT manufacturing - Held for Trading $35.20 (Investment sold and loss recoganized)Related Questions
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