Question

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys equity securities as noncurrent investments. None of Ornamental’s investments are large enough to exert significant influence on the investee. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020. Mar. 31 Acquired Distribution Transformers Corporation common stock for $400,000. Sep. 1 Acquired $900,000 of American Instruments' common stock. Sep. 30 Received a $16,000 dividend on the Distribution Transformers common stock. Oct. 2 Sold the Distribution Transformers common stock for $425,000. Nov. 1 Purchased $1,400,000 of M&D 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 $ 850,000 M&D Corporation common stock $ 1,460,000 Required: 1. Prepare the appropriate journal entry for each transaction or event during 2021, as well as any adjusting entries necessary at year end. 2. Indicate any amounts that Ornamental Insulation would report in its 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and retained earnings as a result of these investments.

ndicate any amounts that Ornamental Insulation would report in its 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and retained earnings as a result of these investments.

Income statement: Dividend revenueselected answer correct not attempted $16,000selected answer correct Cashselected answer incorrect not attempted not attempted Net income $16,000 Statement of comprehensive income: not attempted not attempted Other comprehensive income $10,000selected answer incorrect Comprehensive income not attempted Balance sheet: Assets Investments in equity securitiesselected answer incorrect not attempted $2,300,000selected answer incorrect Gain on investmentsselected answer incorrect not attempted 10,000selected answer incorrect Noncurrent Assets not attempted not attempted not attempted not attempted $0 Shareholders’ Equity Comprehensive incomeselected answer incorrect $10,000selected answer incorrect

• Required 1
• Required 2

Answer 1

Income statement:
Dividend revenue		16000
Gain on equity securities		35000
Net income		51000
Statement of comprehensive income:
Net income		51000
Other comprehensive income		0
Comprehensive income		51000
Balance sheet:
Assets
Noncurrent assets:
Equity investments	2300000
Add: fair value adjustment	10000	2310000
Shareholders’ equity
Retained earnings		51000

No	Date	General Journal	Debit	Credit
1	March 31, 2018	Investment in Distribution Transformers stock	400,000
		Cash		400,000
2	September 01, 2018	Investment in American Instruments bonds	900,000
		Cash		900,000
3	September 30, 2018	Cash	16,000
		Dividend revenue		16,000
4	October 02, 2018	Fair value adjustment	25000
		Unrealized holding gain - NI		25000
5	October 02, 2018	Cash	425000
		Investment in Distribution Transformers stock		400000
		Fair value adjustment		25000
6	November 01, 2018	Investment in M&D Corporation Stock	1400000
		Cash		1400000
7	December 31, 2018	Fair value adjustment (1460000-1400000)+(850000-900000)	10000
		Unrealized holding gain - NI		10000

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