Question

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys equity securities as 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, 2017.

Mar.		31		Acquired Distribution Transformers Corporation common stock for $470,000.
Sep.		1		Acquired $1,005,000 of American Instruments' common stock.
Sep.		30		Received a $14,100 dividend on the Distribution Transformers common stock.
Oct.		2		Sold the Distribution Transformers common stock for $502,000.
Nov.		1		Purchased $1,470,000 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	$	948,000
M&D Corporation common stock	$	1,537,000

Required:
1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end.
2. Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments.

• Required 2

Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments.

Income statement: Dividend revenue $14,100 Unrealized holding gain on investments held 10,000 Unrealized holding gain on investments sold that occurred prior to sale 32,000 Net income $56,100 Statement of comprehensive income: Net income $56,100 Other comprehensive income ???? Comprehensive income ????/ Balance sheet: Assets Current Assets Equity investments ???? Add: Fair value adjustment 10,000 $10,000 Shareholders’ Equity Retained earnings $56,100

Answer 1

JOURNAL ENTRY

mar 31 Equity investment in distibution transformation corporation 470000

cash account 470000

(purchased shares in distribution corporation)

sep1 Eqity investment in american instrument 1005000

cash 105000

(purchased shares in american instrument)

Cash 14100

sep 30 Dividend income 14100

(dividend received from distribution transformation)

oct 2 cash 502000

profit on sale 32000

Distribution transformation investment 470000

(sold distibution trasformation stock for 502000)

nov 1 M&M Corporation stock investmeny 1470000

cash 1470000

(purchase M&M corporation stock for 14700000)

Dec 31

unrealised loss (fair value adjustment) 57000

american instrument investment 57000

(market price is adjusted to 9480000)

M$M corportion investment (fair value adjustment) 67000

unrealised gaiin 67000

(market value is adjusted to book value)

INCOME STATEMENT

DIVIDEND RECEIVED 14100

PROFIT ON SALE 32000

NET INCOME 46100

STATEMENT OF COMPREHENSIVE INCOME STATEMENT

NET INCOME 46100

UNREALISED HOLDING GAIN ON SECURITES 10000

COMPREHENSIVE INCOME 56100

BALANCE SHEET

CURRENT ASSETS

CASH 516100

EQITY INVESTMENTS 2475000

FAIR VALUE ADJUSTMENT 10000    RETAINED EARNINGS 46100 TOTAL     3047200