2014
Feb. 1. Purchased 12,000 shares of Acuity Inc. as an available-for-sale security at $27 per share, including the brokerage commission.
Mar. 18. Received a cash dividend of $0.18 per share on Acuity Inc. stock.
Sept.12. A cash dividend of $0.24 per share was received on the Acuity stock.
28. Sold 1,000 shares of Acuity Inc. stock at $21 per share, less a brokerage commission of $50.
Dec. 31. Acuity Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $33 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment.
2015
Jan. 23. Purchased an influential interest in Shouse Inc. for $376,000 by purchasing 70,000 shares directly from the estate of the founder of Shouse Inc. There are 250,000 shares of Shouse Inc. stock outstanding.
Mar. 16. Received a cash dividend of $0.24 per share on Acuity Inc. stock.
Sept.16. Received a cash dividend of $0.24 per share plus an extra dividend of $0.06 per share on Acuity Inc. stock.
Dec. 31. Received $30,100 of cash dividends on Shouse Inc. stock. Shouse Inc. reported net income of $190,000 in 2015. Daffitar Inc. uses the equity method of accounting for its investment in Shouse Inc.
31. Acuity Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $30 per share. Use the valuation allowance for available-for sale investments account in making the adjustment for the decrease in fair value from $33 to $30 per share.
Instructions
1. Journalize the entries to record these transactions.
2. Prepare the investment-related asset and stockholders’ equity balance sheet presentation for Daffitar Inc. on December 31, 2015, assuming the Retained Earnings balance on December 31, 2015, is $465,000.
Answer:
1.
2014
Feb. 1 Investments—Acuity Inc.* 324,000
Cash 324,000
*12,000 shares × $27 per share
Mar. 18 Cash* 2,160
Dividend Revenue 2,160
*12,000 shares × $0.18 per share
Sept. 12 Cash* 2,880
Dividend Revenue 2,880
*12,000 shares × $0.24 per share
28 Cash* 20,950
Loss on Sale of Investments 6,050
Investments—Acuity Inc.** 27,000
*(1,000 shares × $21.00) – $50
**1,000 shares × $27 per share
Dec. 31 Valuation Allowance for Available-forSale
Investments 66,000
Unrealized Gain (Loss) on Available-forSale
Investments 66,000
11,000 shares × ($33.00 – $27.00).
2015
Jan. 23 Investment in Shouse Inc. Stock 376,000
Cash 376,000
Mar. 16 Cash* 2,640
Dividend Revenue 2,640
*(12,000 shares – 1,000 shares) × $0.24 per share
Sept. 16 Cash* 3,300
Dividend Revenue 3,300
*11,000 shares × ($0.24 + $0.06)
Dec. 31 Cash 30,100
Investment in Shouse Inc. Stock 30,100
31 Investment in Shouse Inc. Stock 53,200
Income of Shouse Inc. 53,200
To record 28% of Shouse Inc.
income $190,000 × (70,000 shares ÷
250,000 shares).
31 Unrealized Gain (Loss) on Available-forSale
Investments 33,000
Valuation Allowance for Available-forSale
Investments* 33,000
*($30.00 – $33.00) × 11,000 shares
2.
DAFFITAR INC.
Balance Sheet (selected items)
December 31, 2015
Current assets:
Available-for-sale investments (at cost)
1 $297,000
Plus valuation allowance for available-forsale
investments 33,000
Available-for-sale investments (at fair value)
2 $330,000
Investments:
Investment in Shouse Inc. stock3 $399,100
Stockholders’ equity:
Retained earnings $465,000
Unrealized gain (loss) on available-for-sale
investments 33,000
1 11,000 shares × $27 per share
2 11,000 shares × $30 per share
3 $376,000 + $53,200 – $30,100