Question

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys equity securities as investments. None of Ornamental's investments are large enough to exert significant influence on the investee. Omamental's fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017 Mar. 31 Acquired Distribution Transformers Corporation common stock for $590,000. Sep. 1 Acquired $1,185,000 of American Instruments' common stock. Sep. 30 Received a $20,650 dividend on the Distribution Transformers common stock. Oct. 2 Sold the Distribution Transformers common stock for $634,000. Nov. 1 Purchased $1,590,000 of MED Corporation common stock. Dec. 31 Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are: American Instruments common stock M&D Corporation common stock $1,116,000 $1,669,000 1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end. 2. Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/3V2018 balance sheet as a result of these investments

Answer 1

Part 1

No	Date	General Journal	Debit	Credit
1	March 31, 2018	Investment in Distribution Transformers stock	590,000
		Cash		590,000
2	September 01, 2018	Investment in American Instruments bonds	1185000
		Cash		1185000
3	September 30, 2018	Cash	20650
		Dividend revenue		20650
4	October 02, 2018	Fair value adjustment	44000
		Unrealized holding gain - NI		44000
5	October 02, 2018	Cash	634000
		Investment in Distribution Transformers stock		590000
		Fair value adjustment		44000
6	November 01, 2018	Investment in M&D Corporation Stock	1590000
		Cash		1590000
7	December 31, 2018	Fair value adjustment (1669000-1590000)+(1116000-1185000)	10000
		Unrealized holding gain - NI		10000

Part 2

Income statement:
Dividend revenue		20650
Gain on investments		54000
Net income		74650
Statement of comprehensive income:
Net income		74650
Other comprehensive income		0
Comprehensive income		74650
Balance sheet:
Assets
Investments:
Investments in equity securities	2775000
Add: fair value adjustment	10000	2785000
Shareholders’ equity
Retained earnings		74650