Question

16-6. Debt Investment, Equity Investments, K&Z Potato Chip Company, a U.S. GAAP reporter, with the following information regarding its investments in equity securities during the current Date January 1 (Beginning Balance: No entry required) January 23 February 4 Description K&Z is currently holding 8,500 of Faithful Corporation common shares (publicly traded). The Faithful shares cost $20 per share. There is a debit balance of $17,000 in the fair value adjustment account. K&Z does not have a significant influence over the investee. K&Z purchased 1,700 shares of Lawrence Company common stock for $155 per share. Lawrence Company is publicly traded. K&Z does not have a significant influence over the investee. K&Z acquired 136,000 of the 340,000 outstanding shares of Zombie, Inc. for a total cost of $1,020,000. Faithful Corporation paid a $3.40 per share cash dividend. Zombie, Inc. reported $1,850,000 in net income for the year. Zombie also declared and paid a cash dividend of $2.55 per share. K&Z purchased 340 bonds of the Pierre Nardo Group (PNG) at $1,000 par and intends to hold the debt investment to maturity. K&Z accrued interest on the PNG bonds amounted to $42,500. The year-end market values of the Faithful Corporation and Lawrence shares are $30.60 and $170 per share, respectively. The PNG bonds were trading at $1,700 at the end of the current period, and Zombie was trading at $10 per share. March 23 June 30 October 15 December 31 December 31

Answer 1

Date	JOURNAL	DEBIT	CREDIT
1-Jan	No entry	$	$
23-Jan	Lawrence company common stock A/c	263,500
	Bank A/c (WN-1)		263,500
4-Feb	Shares of Zombie Inc.A/c	1,020,000
	Bank A/c		1,020,000
23-Mar	Bank A/c (WN-3)	28,900
	Dividend A/c (Faithful Corporation)		28,900
30-Jun	Bank A/c (WN- 3)	346,800
	Dividend A/c ( Zombie Inc.)		346,800
15-Oct	Bonds A/c ( Pierre Nardo Group)	340,000
	Bank A/c (WN- 4)		340,000
31-Dec	Accrued Interest A/c	42,500
	Interest receivable A/c		42,500
31-Dec	No Entry ( WN - 5)

Working Notes:-

1.) Amount spent = 1700 shares $\times$ $ 155 = $ 263,500

2.) Dividend received from Faithful corporation = 8500 shares $\times$ $ 3.40 = $ 28,900

3.) Dividend received from Zombie Inc. = Acquired shares $\times$ Dividend per share = 136,000 shares $\times$ $ 2.55 = $ 346,800

4.) Amount payable for acquiring bonds = 340 $\times$ $ 1,000 = $ 340,000

5.) No entry will be recorded on account of change in market share until company decides to liquidate their investment at increased market price and earn some capital gains.