At December 31, 2007, Poe Corporation properly reported the following available-for-sale securities.
All were acquired in 2007.

On January 2, 2008, Poe purchased 100,000 shares of Scott Corporation common stock for \($1,700,000\), representing 30% ofS cott’s outstanding common stock and an underlying equity of \($1,400,000\) in Scott’s net assets on that date. The excess of cost over Poe’s equity in the book value of Scott’s net assets at acquisition is attributed to fixed assets to be depreciated over a 40-year period with zero salvage value. As a result of Poe’s 30% ownership of Scott, Poe has the ability to exercise significant influence over Scott’s financial and operating policies.
During 2008 Poe disposed of the following securities:
• January 18—sold 2,500 shares of Purl for \($13\) per share.
• June 1—sold 500 shares of Day for \($21\) per share.
The following 2008 dividend information pertains to stock owned by Poe:
• April 5 and October 5—Axe paid dividends of \($1.20\) per share on its \($2.40\) preferred stock to stockholders of record on March 9 and September 9, respectively.
• June 30—Purl paid a \($1.00\) per share dividend on its common stock.
• March 1, June 1, September 1, and December 1—Scott paid quarterly dividends of \($0.50\) per share on each of these dates. Scott’s net income for the year ended December 31, 2008 was $1,200,000.
At December 31, 2008, Poe’s management intended to hold Scott's stock on a long-term basis with the remaining investments considered available-for-sale securities. Market prices per share of these securities were as follows:

Required:
1. Determine the unrealized gain or loss on Poe’ available-for-sale securities for 2007, and provide the journal entry to record the mark-to-market adjustment on December 31, 2007, Ignore tax effects.
2. Prepare the journal entries to record the realized gains or losses on Poe's sales of securities for 2008.
3. Prepare the entries to record Poe’s receipt of dividends on all securities in 2008 and all entries related to Poe’s equity investment in Scott Corporation.
4. Determine the unrealized gain or loss on Poe’s available-for-sale securities for 2008, and provide the journal entry to record the mark-to-market adjustment on December 31, 2008. Ignore tax effects.

Transcribed Image Text:

Cost Fair Value Axe Corporation, 1,000 shares, $2.40 convertible preferred stock $ 40,000 $ 42,000 Purl, Inc., 6,000 shares of common stock 60,000 66,000 Day Company, 2,000 shares of common stock 55,000 40,000 Total available-for-sale securities $155,000 $148,000