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 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, 2020. Mar. 31 Acquired Distribution Transformers Corporation common stock for $590,000. Sep. 1 Acquired $1,185,000 of American Instruments' common stock. Sep. 30 Received a $20,650 dividend on the Distribution Transformers common stock. Oct. 2 Sold the Distribution Transformers common stock for $634,000. Nov. 1 Purchased $1,590,000 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 $1,116,000 $1,669,000 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

1	Date	Account titles and explanation						Debit	Credit
	Mar 31.	Investment in distribution transformers corporation						590000
		Cash							590000
		(Acquired distribution transformers corporation common stock)
	Sep 1.	Investment in american instruments						1185000
		Cash							1185000
		(Acquired american instrument's common stock)
	Sep 30.	Cash						20650
		Dividend revenue							20650
		(Received dividend)
	Oct 2.	Cash						634000
		Investment in distribution transformers corporation							590000
		Gain on sale of investments							44000
		(Sold distribution transformers corporation common stock)
	Nov 1.	Investment in M&D corporation						1590000
		Cash							1590000
		(Acquired M&D corporation's common stock)
	Dec 31.	Fair value adjustment					(Note:1)	10000
		Net unrealized holding gains and losses							10000
		(Market value adjusted)
	Note:1- Fair value adjustment
					Book value	Market price	Gain/(loss)
					1	2	(2-1)
	American instrument's common stock				1185000	1116000	-69000
	M&D corporation's common stock				1590000	1669000	79000
	Net gain				2775000		10000
2							$	$
	Income statement:
	Dividend revenue							20650
	Gain on sale of investmment							44000
	Net income							64650
	Statement of comprehensive income:
	Net unrealized holding gains and losses							10000
	Balace sheet:
			Assets
	Current assets
	Equity investments			(1185000+1590000)			2775000
	Add:Fair value adjustment						10000	2785000
			Shareholder's equity
	Retained earnings							64650
	Accumulated other comprehensive income
	Unrealized holding gain on investment held							10000