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 $560,000. Sep. 1 Acquired $1,140,000 of American Instruments' common stock. Sep. 30 Received a $16,800 dividend on the Distribution Transformers common stock. Oct. 2 Sold the Distribution Transformers common stock for $601,000. Nov. 1 Purchased $1,560,000 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 $ 1,074,000 M&D Corporation common stock $ 1,637,000 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

Journal Entries
Date	Particulars	Debit	Credit
March 31st	Investment in Transformer's Corporation	560,000
	Cash		560,000
	(Being investment made)
Sep 1st	Investment in American's Instrument	1,140,000
	Cash		1,140,000
	(Being investment made)
Sep 30th	Cash	16,800
	Dividend revenue		16,800
	(Being dvidend received on investment made)
Oct 2nd	Cash	601,000
	Investment in Transformer's Corporation		560,000
	Unrealised Gain Account		41,000
	(Being investment sold)
Nov 1st	Investment in M&D Corporation	1,560,000
	Cash		1,560,000
	(Being investment made)
Dec 31st	FairValue Adjustment	11,000
	Unrealised Gain Account		11,000
	(Being fair market value recognised- refer working 1)
Working
1	American Instrument
	Fair Market value as on 31st Dec = 1074,000
	Less Book Value                               = 1140,000
	Loss                                                   = 66,000
	M&D Corporation
	Fair Market value as on 31st Dec = 1637,000
	Less Book Value                               = 1560,000
	Gain                                                   = 77,000
	Net Gain = 77000-66000
	Net Gain = 11,000

Income Statement of 2021
Particulars	Amount
Dividend income	16,800
Unrealised Gain on investment sold	41,000
Income Statement of 2021	57,800
Other Comprehensive income of 2021
Particulars	Amount
Unrealised Gain on investment held ;-
Loss on American instrument -66000
Gain on M& D instrument       +77000
Net comprehensive income	11000
Balance sheet
Assets
Investment in American's Corporation	1140000
Investment in M&D Corporation	1560000
Total investments	2700000
Liabilities
Shareholder's equity	11,000	`(it is the amount of fair value adjustment as on 31st Dec)
Net income	57,800