Long-Term Investments Using the Equity Method

Century Corporation acquired 8,400 common shares of Fidelity Company on January 10, 2022, for $12 per share and acquired 15,000 common shares of Essem Corporation on January 25, 2022, for $22 per share. Fidelity has 60,000 shares of common stock outstanding, and Essem has 50,000 shares outstanding. At December 31, 2022, the following information was obtained about the operations of Fidelity and Essem:

		Fidelity		Essem
Net income		$36,000.00		$100,000.00
Dividends paid per share		0.40		1.00
Market value per share at December 31, 2022		10.00		20.00

Assume that Century Corporation exerted significant influence over the policies of Essem Corporation, but influenced the policies of Fidelity Corporation only to a very limited extent. Century made an irrevocable option to measure the equity investment in Fidelity Company as fair value through other comprehensive income, and Century classified its investment in Fidelity as an FVTOCI financial assetequity.

Question Content Area

Required: 1. How should Century account for its investments in Essem Corporation?

(a) Equity method

(b) Amortized cost

(c) FVTPL

(d) FVTOCI

(a)(b)(c)(d)

Question Content Area

2. Prepare the journal entries for each investment for the year 2022 using the method or methods you selected in part (1).

blank	Investment in Fidelity Company	blank	blank
Jan. 10	Accounts PayableAccounts ReceivableCashCost of Goods SoldFVTOCI Financial Assets-Equity, Fidelity Co.	- Select -	- Select -
	Accounts PayableAccounts ReceivableCashCost of Goods SoldFVTOCI Financial Assets-Equity, Fidelity Co.	- Select -	- Select -
Dec. 31	Accounts PayableAccounts ReceivableCashCost of Goods SoldDividend Income	- Select -	- Select -
	Accounts PayableAccounts ReceivableCashCost of Goods SoldDividend Income	- Select -	- Select -
	To record dividends received from Fidelity Company.	blank	blank
Dec. 31	Accounts PayableAccounts ReceivableCashUnrealized Gains or Losses of FVTOCI Financial Assets-Equity,Fidelity Co.Valuation Adjustment of FVTOCI Financial Assets-Equity,Fidelity Co.	- Select -	- Select -
	Accounts PayableAccounts ReceivableCashUnrealized Gains or Losses of FVTOCI Financial Assets-Equity,Fidelity Co.Valuation Adjustment of FVTOCI Financial Assets-Equity,Fidelity Co.	- Select -	- Select -
	To record the write-down of the investment in Fidelity Company to market value.	blank	blank
blank	Investment in Essem Corporation	blank	blank
Jan. 25	Accounts PayableAccounts ReceivableCashCost of Goods SoldInvestment Accounted for Using the Equity Method, Essem Corp.	- Select -	- Select -
	Accounts PayableAccounts ReceivableCashCost of Goods SoldInvestment Accounted for Using the Equity Method, Essem Corp.	- Select -	- Select -
Dec. 31	Accounts PayableAccounts ReceivableCashInvestment Accounted for Using the Equity Method, Essem Corp.Share of Income from Associates	- Select -	- Select -
	Accounts PayableAccounts ReceivableCashInvestment Accounted for Using the Equity Method, Essem Corp.Share of Income from Associates	- Select -	- Select -
	To record Centurys share of Essem Corporations earnings for 2022.	blank	blank
Dec. 31	Accounts PayableAccounts ReceivableCashCost of Goods SoldInvestment Accounted for Using the Equity Method, Essem Corp.	- Select -	- Select -
	Accounts PayableAccounts ReceivableCashCost of Goods SoldInvestment Accounted for Using the Equity Method, Essem Corp.	- Select -	- Select -
	To record dividends from Essem.	blank	blank

Question Content Area

3. On March 5, 2023, Century Corporation sold 400 shares of Fidelity Company stock. The market value on that day was $12 per share. What is the gain or loss of the sale? If an amount is 0, enter 0