Question
Stock Investment Transactions, Equity Method and Available-for-Sale Securities Glacier Products Inc. is a wholesaler of rock climbing gear. The company began operations on January 1,
Stock Investment Transactions, Equity Method and Available-for-Sale Securities
Glacier Products Inc. is a wholesaler of rock climbing gear. The company began operations on January 1, Year 1. The following transactions relate to securities acquired by Glacier Products Inc., which has a fiscal year ending on December 31:
| Year 1 | |
| Jan. 18. | Purchased 8,800 shares of Malmo Inc. as an available-for-sale investment at $54 per share, including the brokerage commission. |
| July 22. | A cash dividend of $0.60 per share was received on the Malmo stock. |
| Oct. 5. | Sold 4,000 shares of Malmo Inc. stock at $57 per share less a brokerage commission of $55. |
| Dec. 18. | Received a regular cash dividend of $0.60 per share on Malmo Inc. stock. |
| Dec. 31 | Malmo Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $51 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment. |
| Year 2 | |
| Jan. 25. | Purchased an influential interest in Helsi Co. for $650,000 by purchasing 56,000 shares directly from the estate of the founder of Helsi. There are 160,000 shares of Helsi Co. stock outstanding. |
| July 16. | Received a cash dividend of $0.70 per share on Malmo Inc. stock. |
| Dec. 16. | Received a cash dividend of $0.70 per share plus an extra dividend of $0.10 per share on Malmo Inc. stock. |
| Dec. 31 | Received $20,000 of cash dividends on Helsi Co. stock. Helsi Co. reported net income of $82,000 in Year 2. Glacier Products Inc. uses the equity method of accounting for its investment in Helsi Co. |
| Dec. 31 | Malmo Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $57 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the increase in fair value from $51 to $57 per share. |
Required:
1. Journalize the entries to record the preceding transactions. For a compound transaction, if an amount box does not require an entry, leave it blank. In your computations, round per share amounts to two decimal places.
| Date | Description | Debit | Credit |
|---|---|---|---|
| Year 1 | |||
| Jan. 18. | Investments-Malmo Inc. | ||
| Cash | |||
| July 22. | Cash | ||
| Dividend Revenue | |||
| Oct. 5. | Cash | ||
| Gain on Sale of Investments | |||
| Investments-Malmo Inc. | |||
| Dec. 18. | Cash | ||
| Dividend Revenue | |||
| Dec. 31 | Unrealized Gain (Loss) on Available-for-Sale Investments | ||
| Valuation Allowance for Available-for-Sale Investments | |||
| Year 2 | |||
| Jan. 25. | Investment in Helsi Co. Stock | ||
| Cash | |||
| July 16. | Cash | ||
| Dividend Revenue | |||
| Dec. 16. | Cash | ||
| Dividend Revenue | |||
| Dec. 31-Dividends | Cash | ||
| Investment in Helsi Co. Stock | |||
| Dec. 31-Income | Investment in Helsi Co. Stock | ||
| Income of Helsi Co. | |||
| Dec. 31-Valuation | Valuation Allowance for Available-for-Sale Investments | ||
| Unrealized Gain (Loss) on Available-for-Sale Investments | |||
2. Prepare the investment-related asset and stockholders equity balance sheet presentation for Glacier Products Inc. on December 31, Year 2, assuming that the Retained Earnings balance on December 31, Year 2, is $475,000.
| Glacier Products, Inc. Balance Sheet (selected items) December 31, Year 2 | ||
|---|---|---|
| Current Assets: | ||
| Available-for-Sale Investments (at Cost) | ||
| Plus Valuation Allowance for Available-for-Sale Investments | ||
| Available-For-Sale Investments (at Cost) | ||
| Investments: | ||
| Investment in Helsi Co. Stock | ||
| Stockholders' Equity: | ||
| Retained Earnings | ||
| Unrealized Gain (Loss) on Available-for-Sale Investments | ||
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Intermediate Accounting
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones
10th Edition
324300980, 978-0324300987
