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, 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 6,800 shares of Malmo Inc. as an available-for-sale investment at $42 per share, including the brokerage commission.
July 22.	A cash dividend of $0.65 per share was received on the Malmo stock.
Oct. 5.	Sold 3,100 shares of Malmo Inc. stock at $47 per share less a brokerage commission of $40.
Dec. 18.	Received a regular cash dividend of $0.65 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 $39 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 $740,000 by purchasing 38,500 shares directly from the estate of the founder of Helsi. There are 110,000 shares of Helsi Co. stock outstanding.
July 16.	Received a cash dividend of $0.75 per share on Malmo Inc. stock.
Dec. 16.	Received a cash dividend of $0.75 per share plus an extra dividend of $0.10 per share on Malmo Inc. stock.
Dec. 31	Received $22,000 of cash dividends on Helsi Co. stock. Helsi Co. reported net income of $90,000 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 $46 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the increase in fair value from $39 to $46 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	Valuation Allowance for Available-for-Sale Investments
	Unrealized Gain (Loss) on 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 $540,000.

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 Fair Value)
Investments:
Investment in Helsi Co. Stock
Stockholders' Equity:
Retained Earnings
Unrealized Gain (Loss) on Available-for-Sale Investments

Answer 1

1. Journals

Year	Date	Description	Debit	Credit	Notes
1	18th Jan	Investments-Malmo Inc.	285,600		6800 shares @ 42
		Cash		285,600
	22nd Jul	Cash	4,420		6800 shares @0.65
		Dividend Revenue		4,420
	5th Oct	Cash	145,660		3100 shares @47, less @40
		Gain on Sale of Investments		15,460	3100 shares @ (47-42), less $40
		Investments-Malmo Inc.		130,200	3100 shares @ $42
	18th Dec	Cash	2,405		3700 shares @ $0.65
		Dividend Revenue		2,405
	31st Dec	Valuation Allowance for Available-for-Sale Investments		11,100	3700 shares @ (42-39)
	31st Dec	Unrealized Gain (Loss) on Available-for-Sale Investments	11,100
2	25th Jan	Investment in Helsi Co. Stock	740,000		Shareholding is 35%, so equity method will be used
		Cash		740,000
	16th Jul	Cash	2,775		3700 shares @ $0.75
		Dividend Revenue		2,775
	16th Dec	Cash	3,145		3700 shares @ (0.75+0.1)
		Dividend Revenue		3,145
	31st Dec - Dividend	Cash	22,000
		Investment in Helsi Co. Stock		22,000
	31st Dec - Income	Investment in Helsi Co. Stock	31,500		35% of $90,000
		Income of Helsi Co.		31,500
	31st Dec - Valuation	Valuation Allowance for Available-for-Sale Investments	25,900		3700 shares @ (46-39)
		Unrealized Gain (Loss) on Available-for-Sale Investments		25,900

2. Balance Sheet items as at Dec year 2

Current Assets:	Working	Amount
Available-for-Sale Investments (at Cost)	(285,600-130,200)	155,400
Plus Valuation Allowance for Available-for-Sale Investments	(-111,00+25,900)	14,800
Available-for-Sale Investments (at Fair Value)		170,200
Investments:
Investment in Helsi Co. Stock	(740,000-22,000+31,500)	749,500
Stockholders' Equity:
Retained Earnings	Total of all dividend revenue and gain on sale of investment	28,205
Unrealized Gain (Loss) on Available-for-Sale Investments	(-111,00+25,900)	14,800