Equity Method for Stock Investment

On January 4, Year 1, Ferguson Company purchased 480,000 shares of Silva Company directly from one of the founders for a price of $30 per share. Silva has 1,200,000 shares outstanding, including the Daniels shares. On July 2, Year 1, Silva paid $750,000 in total dividends to its shareholders. On December 31, Year 1, Silva reported a net income of $2,000,000 for the year. Ferguson uses the equity method in accounting for its investment in Silva.

a. Provide the Ferguson Company journal entries for the transactions involving its investment in Silva Company during Year 1.

Year 1 Jan. 4
Year 1 July 2
Year 1 Dec. 31

b. Determine the December 31, Year 1, balance of the investment in Silva Company stock account.

$

Fair Value Journal Entries, Available-for-Sale Investments

The investments of Steelers Inc. include a single investment: 33,100 shares of Bengals Inc. common stock purchased on September 12, Year 1, for $13 per share including brokerage commission. These shares were classified as available-for-sale securities. As of the December 31, Year 1, balance sheet date, the share price declined to $11 per share.

a. Journalize the entries to acquire the investment on September 12 and record the adjustment to fair value on December 31, Year 1.

Year 1 Sept. 12	Investments-Bengals, Inc. Stock
	Cash
Year 1 Dec. 31	Unrealized Gain (Loss) on Available-for-Sale Investments
	Valuation Allowance for Available-for-Sale Investments

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a. When recording the purchase of the investment, consider the amount of the brokerage commission.

Calculate any difference between the portfolio cost of both investments and the fair value. If required, record any unrealized gain/loss.

b. How is the unrealized gain or loss for available-for-sale investments disclosed on the financial statements?

Unrealized Gain (Loss) on Available-for-Sale Investments is reported in the Stockholders Equity section of the balance sheet .