Lion had the following transactions relating to its investments during 2013. Lion uses the effective interest method of amortization of premiums or discounts when applicable.
a. On July 1, 2013, Lion acquired a $200,000, 6%, 8-year government bond with interest paid semi-annually on January 1 and July 1. Because the market rate of interest was 4% on that date, Lion paid $227,156 for the bond. The bonds were classified as held-to-maturity by Lion and had a fair value of $210,000 plus accrued interest on December 31, 2013.
b. On July 1, 2013, Lion acquired 6,000 shares of Zebra at a price of $25 per share. On December 31, 2013, dividends of $1.50 per share were declared with an expected date of payment of January 15, 2014. On December 31, 2013, the fair value of the Zebra shares had increased to $28 per share. The shares are classified as available- for-sale by Lion.
c. On July 1, 2013, Lion acquired 30,000 shares (30%) of the outstanding shares of Giraffe at a price of $11 per share, giving it significant influence over Giraffe. Giraffe had net income of $400,000 for the six months ended December 31, 2013 and declared and paid dividends of $220,000 to its shareholders on December 31, 2013. On December 31, 2013, Giraffe’s shares had a fair value of $13 per share.
Required:
Provide all journal entries required relating to these investments on July 1, 2013 and December 31, 2013, including any journal entries required relating to the change in fair value for the year (if no journal entry is required relating to the change in fair value, state so).