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CALCULATOR FULL SCREEN PRINTER VERSION BACK! NEX Problem 17-08 Metlock Corp. is a medium-sized corporation specializing in quPrepare the entries for the Norton investment, assuming that Metlock owns 25% of Nortons shares. Norton reported income of $

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Answer #1

Solution:

Question:1

Date Account title and explanation Debit Credit
2020 Fair Value Adjustment $ 826,000
Unrealized Holding gain or loss $826,000
[Being equity investment is adjusted to fair value]

Note:

1) Calculation of Unrealized Gain/(loss)

Investment Purchase Value/Prior Year Closing Value at year end Unrealized Gain/(loss)
Delaney Motors $            1,347,000 $     1,598,000 $             251,000
Patrick Electric $            1,000,000 $         737,000 $           (263,000)
Norton Industries $          21,535,000 $   22,373,000 $             838,000
Total $             826,000

2) Under fair value rule, investments are recorded at fair value at year end.

3) Here in this question, Norton Industries purchased equity in 2019. So, 2019 year end fair value will be considered in calculation of unrealized gain or loss of investment.

Question:2

NO. Account Title and Explanation Debit Credit
1 Equity Investment-Norton Industries ($482,000 * 25%) $120,500
Investment Income $120,500
[To record revenue]
2 Cash ( $109,000 *25%) $27,250
Equity Investment-Norton Industries $27,250
[To record dividends]

Notes:

1) Dividend received will be deducted from the investment because dividend is a part of equity income, we have already recorded the equity income and if we record dividend also then it will be like a part of equity income recorded twice.

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