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 $520,000. Sep. 1 Acquired $1,080,000 of American Instruments' common stock. Sep. 30 Received a $18,200 dividend on the Distribution Transformers common stock. Oct. 2 Sold the Distribution Transformers common stock for $557,000. Nov. 1 Purchased $1,560,000 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 $1,018, 000 $1,640,000 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

Part 1

No	Date	General Journal	Debit	Credit
1	March 31, 2021	Investment in Distribution Transformers stock	520,000
		Cash		520,000
2	September 01, 2021	Investment in American Instruments bonds	1080000
		Cash		1080000
3	September 30, 2021	Cash	18200
		Dividend revenue		18200
4	October 02, 2021	Fair value adjustment	37000
		Unrealized holding gain - NI		37000
5	October 02, 2021	Cash	557000
		Investment in Distribution Transformers stock		520000
		Fair value adjustment		37000
6	November 01, 2021	Investment in M&D Corporation Stock	1560000
		Cash		1560000
7	December 31, 2021	Fair value adjustment (1640000-1560000)+(1018000-1080000)	18000
		Unrealized holding gain - NI		18000

Part 2

Income statement:
Dividend revenue		18200
Gain on investments		55000
Net income		73200
Statement of comprehensive income:
Net income		73200
Other comprehensive income		0
Comprehensive income		73200
Balance sheet:
Assets
Current assets
Dividend receivable		0
Other receivables		0
Noncurrent assets:
Investments in equity securities	2640000
Add: fair value adjustment	18000	2658000
Shareholders’ equity
Retained earnings		73200