Question

Monty Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2020. The purchase price was $1,310,000 for 52,400 shares. Kulikowski Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2021. Kulikowski reported net income of $701,000 for 2021. The fair value of Kulikowski's stock was $28 per share at December 31, 2021. Assume that the security is a trading security. Prepare the journal entries for Monty Inc. for 2020 and 2021, assuming that Monty cannot exercise significant influence over Kulikowski. (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 o for the amounts.) Date Account Titles and Explanation Debit Credit (To record dividend.) (To record fair value.)

Answer 1

Solution 1:- Journal entries for 2020 and 2021 when Monty Inc. Cannot exercise significant influence over kulikowski Inc.

Date	Account titles and explanations	Debit in $	Credit in $
Dec.31 2020	Equity Investment(Available for sale)	1310000
	Cash		1310000
Jun.30 2021	Cash	44,540
	Dividend Revenue(52,400 shares X $0.85)		44540
Dec.31 2021	Cash	44,540
	Dividend Revenue		44,540
Dec 31 2021	Fair value adjustment	157200
	Unrealized holding loss or gain -Equity		157,200
	(52400 shares X $28 - $1310000)

Solution 2:- Journal entries for 2020 and 2021 when Monty Inc.can exercise significant influence over kulkikowski Inc.

Date	Account titles and explanations	Debit in $	Credit in $
Dec.31 2020	Equity Investment(Kulikowski stock)	1310000
	Cash		1310000
Jun.30 2021	Cash	44,540
	Equity investment(52,400 shares X $0.85)		44540
Dec.31 2021	Cash	44,540
	Equity investment		44,540
Dec 31 2021	Equity investment	140200
	Revenue from investment		140200
	($701,000 X 20℅)

Value of investment (balance sheet)

Fair value method =1310000 + 157200=$1467200

Equity method = (1310000 - 44540 - 44540 +140200=$1361120

Dividend Revenue (Fair value method) = $44540 +$44540 =$89080

Revenue from investment(Equity method)=$ 140200

Unrealized holding gain or loss(Fair value method) = $157,200

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