Refer to the data for Guay Company in Exercise 12-35. Assume that Guay Company reports under International Financial Reporting Standards (IFRS). Under IFRS, Guay can designate an equity investment for accounting based on FVOCI (fair value-other comprehensive income). While holding the equity investment, dividends are recorded in income and unrealized holding gains and losses go to AOCI, much like AFS securities. However, the difference is that these gains and losses are never recognized in income. Rather, they remain in AOCI. Assume that when the shares were purchased, management designated its investment in Core, Inc., for FVOCI treatment.

a. Record the transactions and adjustments for Guay Company under this assumption.

b. Why might the standard setters have allowed this option to companies reporting under IFRS?

Data from Exercise 12-35:

Guay Company had the following transactions and adjustment related to a passive equity investment.

2019

Nov. 15    Purchased 5,000 shares of Core, Inc.'s common stock at $16 per share plus a brokerage commission of $900. Guay Company expects to sell the stock in the near future.

Dec. 22    Received a cash dividend of $1.25 per share of common stock from Core.

 31    Made the adjusting entry to reflect year-end fair value of the stock investment in Core. The year-end market price of the Core common stock is $17 .50 per share.

2020

Jan. 20   Sold all 5,000 shares of the Core common stock for $86,400.

a. Prepare journal entries to record these transactions.

b. Post the journal entries from a to their respective T-accounts.

c. Record each of the transactions in the financial statement effects template.