On January 1, 2021, Pearl Corporation acquired 15,000 common shares of Sapphire Company for $85 each. At the time, Sapphire had 100,000 common shares outstanding. The investment was classified as FV-NI. During 2021, Sapphire reported net income of $525,000 and declared and paid dividends of $30,000. At the end of 2021, the fair value of Sapphire’s shares was $86 per share.

a) Prepare Pearl Corporation’s journal entries for the investment in Sapphire for the 2021 fiscal year. On January 1, 2022, Pearl Corporation acquired another 7,000 common shares of Sapphire Company for $86 each. The book values of Sapphire’s net assets were equal to fair values except for specialized equipment, which was understated by $30,000. The equipment had an estimated remaining life of 15 years. During 2022, Sapphire reported net income of $560,000 and paid dividends of $32,000. At December 31, 2022, the fair value of Sapphire’s shares was $94 per share.

b) Prepare the journal entries on the books of Pearl Corporation for the investment in Sapphire for the 2022 fiscal year. On January 1, 2023, Pearl Corporation acquired another 18,000 common shares of Sapphire Company for $94 per share. The book values of Sapphire’s net assets were equal to fair values except for specialized equipment, which was now understated by $31,500 and had an estimated remaining useful life of 14 years. During 2023, Sapphire Company reported a net income of $580,000 and paid dividends of $33,000. At December 31, 2023, the fair value of Sapphire’s shares was $98 per share.

c) Prepare the journal entries on the books of Pearl Corporation for the investment in Sapphire for the 2023 fiscal year. On January 1, 2024, Pearl Corporation acquired another 20,000 common shares of Sapphire Company for $98 each. The book values of Sapphire’s net assets were equal to fair values except for specialized equipment, which was now understated by $28,000 and had an estimated remaining useful life of 12 years. During 2024, Sapphire Company reported a net income of $520,000 and paid dividends of $28,000. At December 31, 2024, the fair value of Sapphire’s shares was $94 per share.

d) Prepare the journal entries on the books of Pearl Corporation for the investment in Sapphire for the 2024 fiscal year. Assignment 2D School of Business 3 QUESTION 1 (continued) On January 1, 2025, Pearl Corporation sold 3,000 shares of Sapphire Company for $94 per share. On the date of the sale, Pearl showed a balance of $8,500 in its contributed surplus account.

e) Prepare the journal entry on the books of Pearl Corporation to record the sale of the shares in Sapphire.