Question

Required information [The following information applies to the questions displayed below.) As a long-term investment, Painters' Equipment Company purchased 20% of AMC Supplies Inc.'s 400,000 shares for $480,000 at the beginning of the fiscal year of both companies. On the purchase date, the fair value and book value of AMC's net assets were equal . During the year, AMC earned net income of $250,000 and distributed cash dividends of 25 cents per share. At year-end, the fair value of the shares is $505,000 Required: 1. Assume no significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Answer is not complete. No Transactions Debit 1 1 Credit General Journal Investment in equity securities Cash 480,000 480,000 2 2 Cash Dividend revenue 20.000 20,000 3 . O 3 Fair value adjustment Gain on investment furrealized, NI) 25.000 25,000 4 4 No journal entry required

Answer 1

Record journal entry for purchase of investment
No	Transaction	Debit	Credit
1	Investment in equity securities	$480,000
	Cash		$480,000
	(To record investment security purchased)
Record journal entry for share in net income
Since there is no significant influence there would be no share in net income
Thus, no journal entry is required
Record journal entry for dividend income received
No	Transaction	Debit	Credit
3	Cash (400,000*0.25)	$100,000
	Investment income		$100,000
	(To record dividend earned)
Record journal entry for change in fair value of investment
No	Transaction	Debit	Credit
4	Fair value adjustment (505,000-480,000)	$25,000
	Net unrealized holding gains and losses-OCI		$25,000
	(To record increase in fair value)