PearlCorp. 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 company's profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years,Pearlhas had a policy of investing idle cash in equity securities. In particular,Pearlhas made periodic investments in the company's principal supplier, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries,Pearldoes not have significant influence over the operations of Norton Industries.<\/p>
<\/p>
Cheryl Thomas has recently joinedPearlas assistant controller, and her first assignment is to prepare the 2017 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 aboutPearl' pertinent accounts.<\/p>
<\/p>
Part 1 <\/p>
Pearlhas equity securities related to Delaney Motors and Patrick Electric. During 2017,Pearlpurchased103,000shares of Delaney Motors for $1,365,000; these shares currently have a fair value of $1,574,000.Pearl' investment in Patrick Electric has not been profitable; the company acquired48,000shares of Patrick in April 2017 at $21per share, a purchase that currently has a value of $747,000.2.<\/strong>Prior to 2017,Pearlinvested $22,431,000in Norton Industries and has not changed its holdings this year. This investment in Norton Industries was valued at $21,483,000on December 31, 2016.Pearl' 12% ownership of Norton Industries has a current fair value of $22,056,000on December 2017.<\/p> Prepare the appropriate adjusting entries forPearlas of December 31, 2017, to reflect the application of the \"fair value\" rule for the securities described above.(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts.)<\/em><\/strong><\/p> <\/p> Part 2<\/p> <\/p> Prepare the entries for the Norton investment, assuming thatPearlowns 25% of Norton's shares. Norton reported income of $492,000in 2017 and paid cash dividends of $92,000.(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts.)<\/em><\/strong><\/p>",
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