Stock Investment Transactions, Equity Method and Available-for-Sale Securities R

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:

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 $445,000.

2014 Jan. 3 Purchased 7,100 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 $0.70 per share on the Whalen stock. Oct. 19 Sold 3,200 shares of Whalen Inc. stock at $59 per share, less a brokerage commission of $30. Dec. 12 A cash dividend of $0.70 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 $51 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 $610,000 by purchasing 63,000 shares directly from the
estate of the founder of Tasmania Inc. There are 180,000 shares of Tasmania Inc. stock outstanding. July 9 Received a cash dividend of $0.80 per share on Whalen Inc. stock. Dec. 8 Received a cash dividend of $0.80 per share plus an extra dividend of $0.10 per share on Whalen Inc. stock. Dec. 31 Received $18,000 of cash dividends on Tasmania Inc. stock. Tasmania Inc. reported net income of $74,000 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 $51 to $58 per share.

Explanation / Answer

1.

Cost of share sold = 3,200 * 54

Cash received = (3,200 * 59) - 30

Note:- As per chegg guidelines if more than one question is posted than we liable to answer only first question.

Please Rate or comment if you have any doubt regarding this solution.

Date Account description Debit Credit Jan. 3 Whalen Inc. Investment 383,400 Cash 383,400 (7,100 * $54) July 8 Cash 4,970 Dividend Received Account 4,970 (7,100 * $0.70) Oct. 19 Cash 188,770 Whalen Inc. Investment 172,800 Gain on Sale of Investment 15,970

Cost of share sold = 3,200 * 54

Cash received = (3,200 * 59) - 30

Dec. 12 Cash 2,730 Dividend Revenue 2,730 (3,900 * 0.70) Dec. 31 Unrealized Holding Gain or Loss 11,700 Valuation Allowance for Available-for-Sale Investment 11,700 (54 - 51) * 3,900 2015 Jan. 5 Investment in Tasmania Inc. 610,000 Cash 610,000 July 9 Cash 3,120 Dividend Revenue 3,120 (3,900 * 0.80) Dec. 8 Cash 3,510 Dividend Revenue 3,510 (3,900 * 0.90) Dec. 31 Cash 18,000 Investment in Tasmania Inc 18,000 Investment in Tasmania Inc. 25,900 Revenue from Investment 25,900 (63,000/180,000) * 74,000 Dec. 31 Valuation Allowance for Available-for-Sale Investment 27,300 Unrealized Gain of shares investment in Whalen Inc. 27,300 (58 - 51) * 3,900

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