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 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 $400,000. Sep. 1 Acquired $900,000 of American Instruments' common stock. Sep. 30 Received a $16,000 dividend on the Distribution Transformers common stock. Oct. 2 Sold the Distribution Transformers common stock for $425,000. Nov. 1 Purchased $1,400,000 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 $ 850,000 $1,460,000 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

a)
Date	Account Title	Debit	Credit
2018
Mar.31	Investment in Distribution Transformers shares	$            400,000.00
	Cash		$         400,000.00
Sept.1	Investment in American Instruments shares	$            900,000.00
	Cash		$         900,000.00
Sept.30	Cash	$              16,000.00
	Dividend revenue		$           16,000.00
Oct.2	Fair value Adjustment	$              25,000.00
	Unrealized Holding gain(NI)		$           25,000.00
Oct.2	Cash	$            425,000.00
	Investment in Distribution Transformers shares		$         400,000.00
	Fair value adjustment		$           25,000.00
Nov.1	Investment in M&D Corporation shares	$         1,400,000.00
	Cash		$      1,400,000.00
Dec.31	Fair value adjustment (calculated below)	$              10,000.00
	Unrealized Holding gain(NI)		$           10,000.00
	Available for sale securities	Cost	Fair market Value	Profit/Loss
	M & D Corporation shares	$         1,400,000.00	$      1,460,000.00	60000
	American Instruments shares	$            900,000.00	$         850,000.00	-50000
	Totals	$         2,300,000.00	$      2,310,000.00	10000
b)
	Income Statement
	Dividend Revenue	16000
	Unrealized holding gain on investments sold that occurred prior to sale	25000
	Unrealized holding gain on investments held	10000
	Net Income	51000
	Statement of comprehensive income
	Net income	51000
	Other comprehensive income
	Comprehensive income
	Current Assets
	Equity Investments	2300000
	Add: Fair value adjustment	10000	2310000
	Shareholders’ Equity
	Retained Earnings	51000