Question
St. Claire Manufacturing, Inc. had the following investment portfolio on December 31, 20X1. All investments in the portfolio were acquired during 20X1. Equity investments Investee
St. Claire Manufacturing, Inc. had the following investment portfolio on December 31, 20X1. All investments in the portfolio were acquired during 20X1.
Equity investments
Investee Name | Shares | Cost | FV on 12/31/X1 |
Trading | |||
Harris Corporation | 270 | $14,850 | $16,740 |
Webster Holdings Corp. | 180 | $10,800 | $9,360 |
Available-for-Sale | |||
Securities Global Logistics, Inc. | 160 | $4,480 | $4,800 |
Equity Method | |||
Forest Products, Inc. | 30,000 (35%) | $960,000 | $1,080,000 |
Note: Forest Products reported net income of $137,000 and paid dividends of $80,000 in 20X1. 10% of the acquisition price for the stock was attributed to undervalued assets and accordingly is amortized over an assumed average life of 12 years.
Debt Investments
Held-to-Maturity
Imperial Irrigation District Bonds 30, $1,000, 6-year bonds were purchased on January 2, 20X1. The bonds pay interest annually on December 31st at a stated rate of 6%. The bonds were purchased for $25,950 to provide an effective yield of 9%. The bonds had a fair value of $26,700 on December 31, 20X1.
During 20X2 the following occurred:
1. Dividends of $1,800 were received from Harris Corporation on August 1st .
2. 200 shares of Harris Corporation stock were sold on August 15th for $58.00 per share.
3. Dividends of $1,450 were received from Global Logistics on September 1st.
4. 80 shares of Global Logistics stock were sold for $32.00 per share on October 1st .
5. Forest Products reported net income of $148,000 and paid dividends of $100,000 on December 31st .
6. Interest from the Imperial Irrigation District Bonds was received.
7. Due to unforeseen working capital requirements, St. Claires management decided to reclassify, as trading securities, the Imperial Irrigation District bonds on December 31st . The bonds had a fair value of $27,150 ($905 per bond) on that date.
Remaining Global Logistics shares were reclassified as trading securities on December 31st immediately after they were adjusted to fair value.
Securities held in the portfolio at the close of business on December 31, 20X2 had the following fair values:
Harris Corporation - $67.00 per share
Webster Holdings Corp. - $64.00 per share
Global Logistics, Inc. - $39.00 per share
Forest Products, Inc. - $40.00 per share
Imperial Irrigation Bonds - $905.00 per bond
Required:
1. Prepare the journal entries required to record valuation adjustments for the portfolio on December 31, 20X1. Also, prepare entries to record equity-method investment dividends and income and the receipt of interest revenue from debt investments.
2. In chronological order, prepare the journal entries required to record investment related activities for 20X2 to include the receipt of interest and dividends, stock sales, equity-method income, valuation adjustments, and investment reclassifications.
Note: Your solution must be neat and easy to follow and of professional quality (use of Excel is encouraged). Journal entry descriptions and supporting calculations should be provided.
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