2 4 13 1 Problem 20 [significant influence with differential] On January 1, 2020 ABC purchased 100,000 shares of XYZ common shares at purchase price of $13 per 3 share. The ownership of 100,000 shares gives ABC a 20% ownership stake in XYZ, which is sufficient to give ABC significant influence over the operations of XYZ. The fiscal year of ABC ends on 5 December 31. On January 1, 2020, the market value and carrying value were the same for all items on 6 XYZ's balance sheet except for a warehouse, for which the fair value exceeded market value by $80,000. 7 The warehouse has a ten-year remaining useful life. 8 XYZ'S GAAP financials reported total net income of $1,500,000 for calendar year 2020. During that 9 year, XYZ declared and paid of $0.50/share on June 30 and December 31st. ABC received the December 10 31 dividend payment on January 1, 2021. XYZ common stock, which is traded on the New York Stock 11 Exchange, closed at $17 per share on December 31, 2020. 12 All questions below pertain to the accounting for the investment by ABC. 14 15 16 1. Prepare all journal entries related to the equity investment that is necessary for ABC to issue GAAP 17 compliant financial statements for the year ended December 31, 2020. 18 19 Enter your answer below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box. 20 Entry to record purchase of stock on 1/1/2020: 21 22 Account Debit Credit 23 24 1 25 26 27 Entry to record receipt of dividend on 6/30/2020 (assume the dividend payment was received on 6/30): 28 29 Account Debit Credit 30 2 31 2 32 1 wwww 33 34 Entries needed at 12/31/2020: 35 36 Account Debit Credit 37 38 39 40 41 42 43 44 2. What will be the post-adjustment December 31, 2020 balance in the Investment in Stock account? 45 46 Enter your answer in the green box 4 47 48 49 3. What will be the post-adjustment December 31, 2020 balance (if any) in the Fair Value Adjustment 50 account? 51 52 Enter your answer in the green box 5 53 54 4. What amount of dividend revenue (if any) will be reported on the 2020 income statement? 55 56 Enter your answer in the green box 6 57 58 5. What amount of equity in earnings of XYZ (if any) will be reported on the 2020 income statement? 59 60 61 Enter your answer in the green box 62 7 A23 B E F A D 39 3 40 3 41 42 43 44 2. What will be the post-adjustment December 31, 2020 balance in the Investment in Stock account? 45 46 Enter your answer in the green box 4 47 48 49 3. What will be the post-adjustment December 31, 2020 balance (if any) in the Fair Value Adjustment 50 account? 51 52 Enter your answer in the green box 5 53 54 4. What amount of dividend revenue (if any) will be reported on the 2020 income statement? 55 56 Enter your answer in the green box 6 57 58 5. What amount of equity in earnings of XYZ (if any) will be reported on the 2020 income statement? 59 60 61 Enter your answer in the green box 7 62 63 64 6. At what amount will the investment in XYZ common stock be reported in the asset section of the 65 December 31, 2020 balance sheet? 66 67 Enter your answer in the green box 68 8 69 A26 X fx B C 1 Column1 2 Allowance for Credit Loss 3 Cash 4 Credit Loss 5 Discount on Bond 6 Dividend receivable 7 Dividend revenue 8 Equity in earnings of XYZ 9 Fair Value Adjustment 10 Interest Revenue 11 Investment in Bond 12 Investment in XYZ common stock 13 Loss on Impairment (NI) 14 Premium on Bond 15 Realized Gain on Sale of Bond 16 Realized Gain on Sale of Stock 17 Realized Loss on Sale of Bond 18 Reclassification adjustment - OCI 19 Unrealized Holding Gain - NI 20 Unrealized Holding Gain - OCI 21 Unrealized Holding Loss - NI 22 Unrealized Holding Loss - OCI 23 24 25 26 27 28 29 30 31 32