Question
Culver 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
Culver 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 companys profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years, Culver has had a policy of investing idle cash in equity securities. In particular, Culver has made periodic investments in the companys principal supplier, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries, Culver does not have significant influence over the operations of Norton Industries. Cheryl Thomas has recently joined Culver as assistant controller, and her first assignment is to prepare the 2020 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 Culver pertinent accounts.
1. Culver has equity securities related to Delaney Motors and Patrick Electric. During 2020, Culver purchased 103,000 shares of Delaney Motors for $1,365,000; these shares currently have a fair value of $1,574,000. Culver investment in Patrick Electric has not been profitable; the company acquired 48,000 shares of Patrick in April 2020 at $21 per share, a purchase that currently has a value of $747,000.
2. Prior to 2020, Culver invested $22,431,000 in Norton Industries and has not changed its holdings this year. This investment in Norton Industries was valued at $21,483,000 on December 31, 2019. Culver 12% ownership of Norton Industries has a current fair value of $22,056,000 on December 2020.
Prepare the entries for the Norton investment, assuming that Culver owns 25% of Nortons shares. Norton reported income of $492,000 in 2020 and paid cash dividends of $92,000.
1. To record revenue
2. To record dividends
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started