(Accounting for portfolio investments, LO 3) Yellek Inc. (Yellek) is a private corporation owned by the Yellek family. Yellek maintains a significant investment portfolio of publicly traded shares as a method of maximizing the return on surplus cash that the family keeps in the company. In March 2006 Yellek purchased 50,000 shares of Viking Corp. (Viking), a public company that trades on the Toronto Stock Exchange, for $20 per share. Then in May 2006 Yellek purchased an additional 20,000 shares of Viking for $23 per share. During 2006 Viking declared and paid a dividend of $0.12 a share on April 30 and a dividend of $0.12 a share on September 30. On November 12, 2006 Yellek sold 30,000 of its Viking shares for $25 per share because it needed cash to pay dividends to members of the family.

On December 12, 2006 Viking made an announcement that stunned the investment community. Viking was being forced to close one of its operating facilities permanently because of environmental concerns. The facility was responsible for about 20% of its annual production and the company said that it did not think it would be able to make up the lost production in the short term. Immediately after the announcement Viking’s share price fell to $13 per share. On December 31, 2006 Viking’s shares closed at $13.25.

Required:

a. Prepare the journal entries to record the purchase of Viking shares during 2006.

b. Prepare the journal entries to account for the dividends declared and paid by Viking during 2006.

c. Prepare the journal entry to record the sale of Viking shares on November 12, 2006. Assume that Viking uses the specific identification method of accounting for its securities. Explain your entry.

d. How would you account for the effects of the announcement made by Viking on December 12, 2006? Explain. Prepare any journal entry required. Indicate the amount that would be reported on Yellek’s balance sheet for its investment in Viking.