On March 31, 2018, Chow Brothers, Inc., bought 5% of KT Manufacturing\'s capital

Question

On March 31, 2018, Chow Brothers, Inc., bought 5% of KT Manufacturing's capital stock for $551 million. KT's net income for the year ended December 31, 2018, was $817 million. The fair value of the shares held by Chow was $38.4 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 $317 million. Prepare the journal entries to record the sale. Complete this question by entering your answers in the tabs below Required 1 Required 2 Prepare all appropriate journal entries related to the investment during 2018. (If no entry is required for a transaction/event, select "No journal entry required in 5,500,000 should be entered as 5.5)) the first account field. Enter your answers in miltions rounded to 1 decimal place (I.e View transaction list Journal entry worksheet Record the purchase of KT Manufacturing's capital stock for $55.1 million.

Explanation / Answer

Since no information has been provided on whether the investment was classified as trading or available for sale, it has been assumed that the investment was trading.

1.

The following journal entries will be prepared during 2018:

2.

The following journal entry will be prepared to record the sale:

(million $) Date Account Titles and Explanation Debit Credit Mar. 31, 2018 Trading securities 55.1       Cash 55.1 (To record purchase of investment.) Dec. 31, 2018 Unrealized holding gain/loss (55.1 - 38.4) 16.7       Trading securities 16.7

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