2014
Jan. 18. Purchased 9,000 shares of Malmo Inc. as an available-for-sale investment at $40 per share, including the brokerage commission.
July 22. A cash dividend of $3.00 per share was received on the Malmo stock.
Oct. 5. Sold 500 shares of Malmo Inc. stock at $58.00 per share, less a brokerage commission of $100.
Dec. 18. Received a regular cash dividend of $3.00 per share on Malmo Inc. stock.
31. Malmo Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $36.00 per share. Use the valuation allowance for available-for sale investments account in making the adjustment.
2015
Jan. 25. Purchased an influential interest in Helsi Co. for $800,000 by purchasing 75,000 shares directly from the estate of the founder of Helsi. There are 250,000 shares of Helsi Co. stock outstanding.
July 16. Received a cash dividend of $3.00 per share on Malmo Inc. stock.
Dec. 16. Received a cash dividend of $3.00 per share plus an extra dividend of $0.20 per share on Malmo Inc. stock.
Dec. 31. Received $38,000 of cash dividends on Helsi Co. stock. Helsi Co. reported net income of $170,000 in 2015. Glacier Products Inc. uses the equity method of accounting for its investment in Helsi Co.
31. Malmo Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $44 per share. Use the valuation allowance for available-for sale investments account in making the adjustment for the increase in fair value from $36 to $44 per share.
Instructions
1. Journalize the entries to record the preceding transactions.
2. Prepare the investment-related asset and stockholders’ equity balance sheet presentation for Glacier Products Inc. on December 31, 2015, assuming the Retained Earnings balance on December 31, 2015, is $700,000.
Answer:
1.
2014
Jan. 18 Investments—Malmo Inc.* 360,000
Cash 360,000
*9,000 shares × $40 per share
July 22 Cash* 27,000
Dividend Revenue 27,000
*9,000 shares × $3.00 per share
Oct. 5 Cash* 28,900
Gain on Sale of Investments 8,900
Investments—Malmo Inc.** 20,000
*(500 shares × $58.00) – $100
**500 shares × $40 per share
Dec. 18 Cash* 25,500
Dividend Revenue 25,500
*(9,000 shares – 500 shares) × $3.00
31 Unrealized Gain (Loss) on Available-forSale
Investments 34,000
Valuation Allowance for Available-forSale
Investments 34,000
8,500 shares × ($36.00 – $40).
2015
Jan. 25 Investment in Helsi Co. Stock 800,000
Cash 800,000
July 16 Cash* 25,500
Dividend Revenue 25,500
*8,500 shares × $3.00 per share
Dec. 16 Cash* 27,200
Dividend Revenue 27,200
*8,500 shares × ($3.00 + $0.20)
31 Cash 38,000
Investment in Helsi Co. Stock 38,000
31 Investment in Helsi Co. Stock 51,000
Income of Helsi Co. 51,000
To record 30% of Helsi Co. income
$170,000 × (75,000 shares ÷ 250,000
shares).
31 Valuation Allowance for Available-forSale
Investments* 68,000
Unrealized Gain (Loss) on Available-forSale
Investments 68,000
*8,500 × ($44 – $36.00)
2.
GLACIER PRODUCTS, INC.
Balance Sheet (selected items)
December 31, 2015
Current assets:
Available-for-sale investments (at cost)
1 $340,000
Plus valuation allowance for available-forsale
investments 34,000
Available-for-sale investments (at fair value)
2 $374,000
Investments:
Investment in Helsi Co. stock3 $813,000
Stockholders’ equity:
Retained earnings $700,000
Unrealized gain (loss) on available-for-sale
investments 34,000
1 8,500 shares × $40 per share
2 8,500 shares × $44 per share
3 $800,000 + $51,000 – $38,000