Question

Problem 17-08 Concord Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company’s profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years, Concord has had a policy of investing idle cash in equity securities. In particular, Concord has made periodic investments in the company’s principal supplier, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries, Concord does not have significant influence over the operations of Norton Industries. Cheryl Thomas has recently joined Concord as assistant controller, and her first assignment is to prepare the 2020 year-end adjusting entries for the accounts that are valued by the “fair value” rule for financial reporting purposes. Thomas has gathered the following information about Concord’ pertinent accounts. 1. Concord has equity securities related to Delaney Motors and Patrick Electric. During 2020, Concord purchased 101,000 shares of Delaney Motors for $1,395,000; these shares currently have a fair value of $1,559,000. Concord’ investment in Patrick Electric has not been profitable; the company acquired 52,000 shares of Patrick in April 2020 at $20 per share, a purchase that currently has a value of $704,000. 2. Prior to 2020, Concord invested $22,519,000 in Norton Industries and has not changed its holdings this year. This investment in Norton Industries was valued at $21,604,000 on December 31, 2019. Concord’ 12% ownership of Norton Industries has a current fair value of $22,185,000 on December 2020.

Prepare the appropriate adjusting entries for Concord as of December 31, 2020, to reflect the application of the “fair value” rule for the securities described above. (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 0 for the amounts.) Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS LINK TO TEXT

Prepare the entries for the Norton investment, assuming that Concord owns 25% of Norton’s shares. Norton reported income of $482,000 in 2020 and paid cash dividends of $108,000. (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 0 for the amounts.) No. Account Titles and Explanation Debit Credit (1) (To record revenue.) (2) (To record dividends.)

Answer 1

1) Prepare the appropriate adjusting entries for Concord as of December 31, 2020, to reflect the application of the “fair value” rule for the securities described above. (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 0 for the amounts.)
Date	Account Titles and Explanation	Debit	Credit
Investment in trading securities:
	Unrealized Holding Gain or Loss—Income	$    172,000.00
	Fair Value Adjustment (trading).		$      172,000.00
Investment in available-for-sale securities:
	Fair Value Adjustment (available-for-sale)	$581,000
	Unrealized Holding Gain or Loss—Equity.		$581,000
Security	Cost	Fair value	Unrealized Gain (loss)
Delaney Motors	$                                                               1,395,000.00	$ 1,559,000.00	$      164,000.00
Patrick Electric	$                                                               1,040,000.00	$704,000	$    (336,000.00)
			$    (172,000.00)
Computation of Unrealized Gain or Loss in 2019
Security	Cost	Fair value	Unrealized Gain (loss)
Norton Ind.	22519000	$21,604,000	($915,000)
Computation of Unrealized Gain or Loss in 2020
Norton Ind.	22519000	$22,185,000	($334,000)
Previous Fair Value Adjustment(Cr)			($915,000)
Fair Value Adjustment (Dr)			$581,000
Prepare the entries for the Norton investment, assuming that Concord owns 25% of Norton’s shares. Norton reported income of $482,000 in 2020 and paid cash dividends of $108,000. (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 0 for the amounts.)
No.	Account Titles and Explanation	Debit	Credit
1)	Equity Investment (Norton Industries)	$    120,500.00
	Investment Income ($482000 x 25%)		$      120,500.00
	(To record revenue.)
2)	Cash (108000 x 25%)	$      27,000.00
	Equity Investment (Norton Industries)		$        27,000.00
	(To record dividends.)