Question

Exercise 17-16 Blue Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2020. The purchase price was $1,310,000 for 52,400 shares. Kulikowski Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2021. Kulikowski reported net income of $701,000 for 2021. The fair value of Kulikowski's stock was $28 per share at December 31, 2021. Assume that the security is a trading security. Prepare the journal entries for Blue Inc. for 2020 and 2021, assuming that Blue cannot 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 fair value.)

Answer 1

Blue Inc. Requirement a Requirement c Journal Enteries Date Particulars 31.12.2020 Equity Investment a/c To Cash Fair Value Method Equity Method 1467200 1361120 89080 140200 Investment amount Dividend revenue Investment income (income statement) Debit in $ Credit in $ 1310000 1310000 Dr. 30.6.2021 44540 *$1,310,000 + $140,200 - $44,540 - $44,540 = $1,361,120 Cash a/c To Dividend Revenue ($52,400 x $0.85) 44540 Dr. 44540 31.12.2021 Cash a/c To Dividend Revenue (To record dividend) 44540 157200 Fair Value Adjustment a/c Dr. To Unrealized Holding Gain or Loss - Equity (28 x 52400 ) - 1310000 157200 Requirement b Journal Enteries Date Particulars 31.12.2020 Equity Investment a/c To Cash Dr. Debit in $ Credit in $ 1310000 1310000 44540 30.6.2021 Cash a/c To Equity Investment 44540 44540 31.12.2021 Cash a/c To Equity Investment (To record dividend) 44540 140200 Equity Investment a/c Dr. To Revenue from Investment (20% x $701,000) 140200