Buffalo Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company's profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years, Buffalo has had a policy of investing idle cash in equity securities. In particular, Buffalo has made periodic investments in the company's principal supplier, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries, Buffalo does not have significant influence over the operations of Norton Industries. Cheryl Thomas has recently joined Buffalo as assistant controller, and her first assignment is to prepare the 2017 year end adjusting entries for the accounts that are valued by the "fair value' rule for financial reporting purposes. Thomas has gathered the following information about Buffalo' pertinent accounts. 1. Buffalo has equity securities related to Delaney Motors and Patrick Electric. During 2017, Buffalo purchased 101,000 shares of Delaney Motors for $1,384,000, these shares currently have a fair value of $1,540,000. Buffalo' investment in Patrick Electric has not been profitable; the company acquired 52,000 shares of Patrick in April 2017 at $20 per share, a purchase that currently has a value of $720,000. 2. Prior to 2017, Buffalo invested $22,465,000 in Norton Industries and has not changed its holdings this year. This investment in Norton Industries was valued at $21,372,000 on December 31, 2016. Buffalo' 12% ownership of Norton Industries has a current fair value of $22,387,000 on December 2017. Part 1 Your Answer Correct Answer - Your answer is partially correct. Prepare the appropriate adjusting entries for Buffalo as of December 31, 2017 to reflect the application of the "fair value rule for the securities described above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter o for the amounts.) Debit Credit Account Titles and Explanation Unrealized Holding Gain or Loss -Income Fair Value Adjustment eTextbook and Media List of Accounts Solution Attempts: 2 of 2 used Part 2 Prepare the entries for the Norton investment, assuming that Buffalo owns 25% of Norton's shares. Norton reported income of $509,000 in 2017 and paid cash dividends of $100,000. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts. No. Account Titles and Explanation Debit Credit (1) (To record revenue.) (2) (To record dividends.)
