On March 31, 2018, Chow Brothers, Inc., bought 7% of KT Manufacturing’s capital
ID: 2553467 • Letter: O
Question
On March 31, 2018, Chow Brothers, Inc., bought 7% of KT Manufacturing’s capital stock for $51.2 million. KT’s net income for the year ended December 31, 2018, was $80.4 million. The fair value of the shares held by Chow was $35.8 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 $30.4 million. Prepare the journal entries to record the sale.
Explanation / Answer
1) Date Accounts and Explanation Debit Credit Mar-31-2018 Investment in capital stock 51.2 Cash 51.2 ( To record the investment in capital stock) Dec 31 2018 Unrealized holding gain and loss (51.2-35.8) 15.4 Fair value adjustment 15.4 ( To record the adjustment to fair value) 2) Date Accounts and Explanantion Debit Credit jan-20-2019 Unrealized holding gain and loss (20.8-15.4) 5.4 Fair value adjustment 5.4 ( To record the fair value adjustment before sale) jan-30-2019 Cash 30.4 Realized holding gain and loss 20.8 Investment in capital stock 51.2 ( To record the sale of the investment
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