Question

Sage Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company's profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years, Sage has had a policy of investing idle cash in equity securities. In particular, Sage has made periodic investments in the company's principal supplier, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries, Sage does not have significant influence over the operations of Norton Industries. Cheryl Thomas has recently joined Sage as assistant controller, and her first assignment is to prepare the 2017 year-end adjusting entries for the accounts that are valued by the "fair value" rule for financial reporting purposes. Thomas has gathered the following information about Sage' pertinent accounts. 1. Sage has equity securities related to Delaney Motors and Patrick Electric. During 2017, Sage purchased 105,000 shares of Delaney Motors for $1,395,000; these shares currently have a fair value of $1,601,000. Sage' investment in Patrick Electric has not been profitable; the company acquired 45,000 shares of Patrick in April 2017 at $21 per share, a purchase that currently has a value of $ 733,000. Prior to 2017, Sage invested $22,345,000 in Norton Industries and has not changed its holdings this year. This investment in Norton Industries was valued at $21,478,000 on December 31, 2016. Sage' 12% ownership of Norton Industries has a current fair value of $22,020,000 on December 2017. (a) Prepare the appropriate adjusting entries for Sage as of December 31, 2017, to reflept tho saplication of the "fair value" rule for the securities described above. (Credit account titles are automatically indented when amount is entered. Do not indent ma Collapse question part required, select "No Entry" for the account titles and enter o for the amounts.) Account Titles and Explanation Debit Credit

Answer 1

Security Delaney Motors Patrick Electric Total of portfolio Cost $1,395,000 $945,000 $2,340,000 Fair Value $1,601,000 $733,000 $2,334,000 Unrealized Gain (Loss) $206,000 ($212,000) ($6,000) Computation of Unrealized Gain or Loss in 2016 Security Norton Ind. | Cost $22,345,000 Fair Value $21,478,000 Unrealized Gain (Loss) ($867,000) Computation of Unrealized Gain or Loss in 2017 Security Cost $22,345,000 Fair Value $22,020,000 Unrealized Gain (Loss) ($325,000) ($867,000) Norton Ind. Previous Fair Value Adjustment (Cr) Fair Value Adjustment (Dr) $542,000 al) Investment in trading securities: Credit Account Titles and Explanation Unrealized Holding Gain or Loss-Income Fair Value Adjustment (Trading) Debit $6,000 $6,000 a2) Investment in available-for-sale securities: Credit Account Titles and Explanation Fair Value Adjustment (Available-for-Sale) Unrealized Holding Gain or Loss-Equity Debit $542,000 $542,000