Question

*Exercise 17-16 Indigo Inc. ecquired 20% of the outstanding corrmon stock of Therese Kulikowski Inc. on December 31, 2017. The purchase price was $1,212,000 for 50,500 shares. Kulikuwski Inc. dedered and paid an $0.75 per stare cash dividend on June 30 and on December 31, 2018 Kulikowski reported net income of 5730,000 for 2018. The lair value or kulikonski's stock was 527 per share al December 31, 2018 Assume that the security is a trading security Prepare the journal entries for Indigo Inc. for 2017 and 2018, assuming that Indigo cannot exercise significant influence over Kulikowski. (Credit account totes are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter for the amounts.) Date Account Tides and Explanation Debit Credit (To record dividend.) To record fair value. Prepare the journal entries for Indigo Inc. for 2017 and 2018, assurning that Indigo can exercise significant influence over Kulikowski. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter o for the amounts.) Date Account Titles and Explanation Debit Credit To record dividend.) (To record revenue.) At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2018? What is the total net Income reported in 2018 under cach of these methods? Fair Value Method Equity Method Investment amount balance sheet) Dividend revenue income statement) Unrealized holding gain (income statement) Investment income (income statement)

Answer 1

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2017	Equity Investment	1212000
	Cash		1212000
Jun. 30, 2018	Cash (50500 x $0.75)	37875
	Dividend revenue		37875
Dec. 31, 2018	Cash (50500 x $0.75)	37875
	Dividend revenue		37875
	(To record dividend.)
Dec. 31, 2018	Fair value adjustment [(50500 x $27) - $1212000]	151500
	Unrealized holding gain		151500
	(To record fair value)
Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2017	Equity Investment	1212000
	Cash		1212000
Jun. 30, 2018	Cash (50500 x $0.75)	37875
	Equity Investment		37875
Dec. 31, 2018	Cash (50500 x $0.75)
	Equity Investment	37875
	(To record dividend.)		37875
Dec. 31, 2018	Equity Investment (20% x $730000)	146000
	Investment income		146000
	(To record revenue.)

	Fair Value Method	Equity Method
Investment amount (balance sheet)	1363500	1282250
Dividend revenue (income statement)	75750	0
Unrealized holding gain (income statement)	151500	0
Investment income (income statement)	0	146000