Question

Chapter 12 1. The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2020. 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. Ornamental held no investments on December 31, 2019. Mar. 31 Acquired Distribution Transformers Corporation common stock for $560,000. Sep. Acquired $1,140,000 of American Instruments' common stock. Sep. 30 Received a $16,800 dividend on the Distribution Transformers common stock. Oct. 2 Sold the Distribution Transformers common stock for $601,000. 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 at December 31, 2020. American Instruments common stock $1,074,000 M&D Corporation common stock $1,637,000 What net income will Ornamental Insulation Corporation report for 2020?

Answer 1

Solution:

The Net Income to be reported by Ornamental Insulation Corporation for 2020 = $ 57,800

Date	Particulars	Amount($)
Sept. 30	Dividend Revenue-Distribution Transformers Corporation(601000-560000)	$        16,800
Oct. 2	Gain on sale of investment-Distribution Transformers Corporation	$        41,000
	Total	$        57,800

Notes:

1) Only realized revenues should be reported in income statement.

2) Unrealized gain or loss should be reported in other comprehensive income.