Question
During 2007, The Dontfalemy Company purchased shares of the outstanding common stock of the following companies; (i) ABC Co. for $2,100,000; (ii) ABD, Inc. for
During 2007, The Dontfalemy Company purchased shares of the outstanding common stock of the following companies; (i) ABC Co. for $2,100,000; (ii) ABD, Inc. for $3,720,000, (iii) ABE Co. for $2,570,000; and (iv) the ABF Corporation for $3,360,000.
Dontfalemy acquired 2% of ABDs outstanding shares because it expected that ABD stocks market value would increase rapidly within the next few months and that Dontfalemy would be able to realize a quick profit on the investment. Likewise, Dontfalemy purchased 10%of ABCs stock and 8% of ABEs stock because those companies are expected to pay high dividends and increase steadily in market value over the coming years. Dontfalemys acquisition of 30% of ABFs shares resulted in its owning the largest single concentration of stock held by any of ABFs stockholders.
At December 31, 2007, Dontfalemy had the follow data for the companies in which it had invested:
Company Companys Net Income Total Market Value of Companys Stock
ABC $ 864,000 $ 26,500,000
ABD 1,210,000 179,500,000
ABE 922,000 35,500,000
ABF 2,300,000 12,200,000
Assuming that Dontfalemy maintains separate ledger control accounts for trading, held for sale, and equity-basis investments, what journal entries did Dontfalemy make with regard to its investments at December 31, 2007?
The Dontfalemy Company
Journal Entries
12/31/07 Valuation allowance Investment in ABC Corp 550,000
Valuation allowance Investment in ABE Co. 270,000
Unrealized holding gain on securities
held available for sale 820,000
Unrealized holding loss on securities held for
trading purposes 130,000
Valuation allowance Investment in
ABD, Inc. 130,000
Investment in ABF Corporation (2,300,000*30%) 690,000
Earnings from subsidiary 690,000
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