Question 240 marks) Empire Investment Company engaged in several investments in 2019: Its financial year-end is December 31. On 1 January, it acquired 30% of the outstanding ordinary shares of Sweetie Limited for $880,000 cash. At the date of purchase, the book value of Sweetie's net assets was $2,500,000. The book values and fair values for all items were the same except the plant and goodwill. The fair value exceeds the book value by $150,000 for the plant. The estimated useful life of the plant is 5 years. The equity method is deemed appropriate to account for this investment. On March, Empire acquired bonds from Swire Limited at $878,333 and intends and has the ability to hold it until its maturity (the mature date of the bonds is 1 March 2024). The bond has a face value 100 and stated interest rate at 5%. Interest is payable semi-annually with its first interest payment due on 1 September 2019. The market rate of return of the similar bonds is 8% at the date of purchase. Empire adopts the effective interest method to account for the amortization of bonds discounts or premiums, if any. On 1 May, Empire purchased 5,000 shares of Smart Limited at $12 each with brokerage fee of $1,500. It sold out half of Smart's shares at S20 cach and exchange for 3,000 Swing's shares on 31 August. Both investments are acquired to benefit from making profit arising from the short-term price changes. On 31 December 2019, Sweetie Limited paid cash dividends of S20,000 and reported net income of $450,000. On the same day. Smart Limited declared and paid cash dividends $2 for each share. The market price or fair value of the investments at the financial year-end are shown as below: Smart Limited-shares: S15 per share Swing Limited-shares: S18 per share Sweetie Limited- shares: $1,000,000 Swire Limited - bond: $900,000 Required: Prepare all relevant journal entries to record the above investments for the year 2019, Question 240 marks) Empire Investment Company engaged in several investments in 2019: Its financial year-end is December 31. On 1 January, it acquired 30% of the outstanding ordinary shares of Sweetie Limited for $880,000 cash. At the date of purchase, the book value of Sweetie's net assets was $2,500,000. The book values and fair values for all items were the same except the plant and goodwill. The fair value exceeds the book value by $150,000 for the plant. The estimated useful life of the plant is 5 years. The equity method is deemed appropriate to account for this investment. On March, Empire acquired bonds from Swire Limited at $878,333 and intends and has the ability to hold it until its maturity (the mature date of the bonds is 1 March 2024). The bond has a face value 100 and stated interest rate at 5%. Interest is payable semi-annually with its first interest payment due on 1 September 2019. The market rate of return of the similar bonds is 8% at the date of purchase. Empire adopts the effective interest method to account for the amortization of bonds discounts or premiums, if any. On 1 May, Empire purchased 5,000 shares of Smart Limited at $12 each with brokerage fee of $1,500. It sold out half of Smart's shares at S20 cach and exchange for 3,000 Swing's shares on 31 August. Both investments are acquired to benefit from making profit arising from the short-term price changes. On 31 December 2019, Sweetie Limited paid cash dividends of S20,000 and reported net income of $450,000. On the same day. Smart Limited declared and paid cash dividends $2 for each share. The market price or fair value of the investments at the financial year-end are shown as below: Smart Limited-shares: S15 per share Swing Limited-shares: S18 per share Sweetie Limited- shares: $1,000,000 Swire Limited - bond: $900,000 Required: Prepare all relevant journal entries to record the above investments for the year 2019
