ACCOUNTING FOR LONG-TERM INVESTMENTS. Michigan Manufacturing holds the following long-term investments at December 31, 19x9:

a) Debt-retirement (sinking) fund: All investments in this fund are in debt securities that are held to maturity. On January 1, 19x9, the fund had a total par value of

$870,000, with unamortized premium of $27,000 and unamortized discount of

$32,500. During 19x9, securities with a face value of $300,000 were purchased for

$296,000 cash, and securities with a face value of $200,000 matured. During the year, interest of $72,000 was received in cash, and premium of $4,300 and discount of $8,900 were amortized. The market value of the portfolio on December 31, 19x9 was $1,053,000.

b) Expansion fund: Investments in the expansion fund on January 1, 19x9, consist of common stock with an acquisition cost of $445,000 and debt securities with a face value of $391,000 and unamortized discount of $11,000. During 19x9, dividends and interest in the amount of $88,400 were received in cash, and discount in the amount of $1,240 was amortized. During the year, common stock with a cost of $56,000 was sold for $72,000 cash, and common stock was purchased for $39,000 cash; no debt securities were sold or purchased during the year. The market value of the expansion fund was $1,375,000 on January 1, 19x9, and $1,240,000 on December 31, 19x9. None of the expansion fund investments in equity securities represent equity interest in the investees of more than 5%.

c) Investments in other companies: In addition to the sinking and expansion funds, Michigan Manufacturing holds common stock investments in two companies:

i. Investment in Detroit Supply, Inc.: The investment in Detroit Supply represents a 25% interest in its common stock acquired on January 1, 19x9, for $290,000 cash, an amount equal to its book value. Detroit Supply reported net income for 19x9 of $30,000 and paid total cash dividends of $9,000 ($2,250 to Michigan Manufacturing) during 19x9. No additional purchases of sales of Detroit Supply stock were made during 19x9, and at year-end the stock had a market value of $315,000.

il) Investment in Toledo Molding, Inc.: The investment in Toledo Molding repre- sents a 70% interest in its common stock purchased on January 1, 19x9, for $875,000 cash, an amount equal to its book value. Toledo Molding reported net income for 19x9 of $300,000 and paid no dividends during 19x9. The market value of the investment in Detroit Supply was $926,000.

REQUIRED:

1. Prepare the entries during 19x9 to record the events described above. 2. Describe how these transactions would affect the 19x9 income statement for Michigan Manufacturing.

3. Describe how the long-term investments would be reported on the December 31, 19x9, balance sheet of Michigan Manufacturing.