Selk Steel Co., which began operations on January 4, 2009, had the following subsequent transactions and events in its long-term investments.

2009

Jan. 5 Selk purchased 50,000 shares (20% of total) of Wulf’s common stock for $1,567,000.

Oct. 23 Wulf declared and paid a cash dividend of $3.20 per share.

Dec. 31 Wulf’s net income for 2009 is $1,164,000, and the fair value of its stock at December 31 is $34 per share.

2010

Oct. 15 Wulf declared and paid a cash dividend of $2.50 per share.

Dec. 31 Wulf’s net income for 2010 is $1,476,000, and the fair value of its stock at December 31 is $36.00 per share.

2011

Jan. 2 Selk sold all of its investment in Wulf for $1,895,500 cash.

Part 1

Assume that Selk has a significant influence over Wulf with its 20% share of stock.

Required

1. Prepare journal entries to record these transactions and events for Selk.

2. Compute the carrying (book) value per share of Selk’s investment in Wulf common stock as reflected in the investment account on January 1, 2011.

3. Compute the net increase or decrease in Selk’s equity from January 5, 2009, through January 2, 2011, resulting from its investment in Wulf.

Part 2

Assume that although Selk owns 20% of Wulf’s outstanding stock, circumstances indicate that it does not have a significant influence over the investee and that it is classified as an available-for-sale security investment.

Required

1. Prepare journal entries to record the preceding transactions and events for Selk. Also prepare an entry dated January 2, 2011, to remove any balance related to the fair value adjustment.

2. Compute the cost per share of Selk’s investment in Wulf common stock as reflected in the investment account on January 1, 2011.

3. Compute the net increase or decrease in Selk’s equity from January 5, 2009, through January 2, 2011, resulting from its investment in Wulf.