Question

Problem 12-7 (Algo) Various transactions related to equity investments: fair value through net income (LO12-5] The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys equity securities as noncurrent investments. None of Ornamentals 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 $510,000. Sep. 1 Acquired $1,065,000 of American Instruments' common stock. Sep. 30 Received a $20,400 dividend on the Distribution Transformers common stock. Oct. 2 Sold the Distribution Transformers common stock for $546,000. Nov. 1 Purchased $1,510,000 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 M&D Corporation common stock $1,004,000 $1,581,000 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.

Answer 1

Ornamental Insulation Corporation
Journal
		for the year ended 31/12/2021
date	Particulars	Lf	Debit	Credit
31-03-21	Investment in Distributors Transforms Corporation A/c------ Dr		510000
	To Bank A/c			510000
	( Being Investment in eq. stock made)
01-09-21	Investment in American Instrument's Common Stock A/c---   Dr		1065000
	To Bank A/c			1065000
	( Being Investment in eq. stock made)
30-09-21	Bank A/c ------                                                                                               Dr		20400
	To Dividend Income A/c			20400
	( Being dividend received on shares held in Distributors Transforms Corporation)
02-10-21	Bank A/c ------                                                                                               Dr		546000
	To    OCI			36000
	To Investment in Distributors Transforms Corporation A/c			510000
	( Being investment sold on a profit & profit transferred to OCI A/c)
01-11-21	Investment in M & D Corporation A/c ------                                    Dr		1510000
	To Bank A/c			1510000
	( Being Investment in eq. stock made)
31-12-21	Dividend Income A/c ------                                                                    Dr		20400
	To Statement of Profit or Loss			20400
	( Being income transferred to P& L A/c)
31-12-21	Investment in M & D Corporation A/c ------                                    Dr		71000
	To Revaluation Reserve A/c			71000
	( Being Investment revalued)
31-12-21	Revaluation Reserve A/c ---------                                                        Dr		61000
	To Investment in American Instrument's Common Stock A/c			61000
	( Being Investment revalued)

2. Amount mentioned in Net Income = $20400

Amount mention in comprehensive income = $36000

Amount mentioned in Retained Earnings= (71000-610000)= $10000