Question

Sweet Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company’s profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years, Sweet has had a policy of investing idle cash in equity securities. In particular, Sweet has made periodic investments in the company’s principal supplier, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries, Sweet does not have significant influence over the operations of Norton Industries.

Cheryl Thomas has recently joined Sweet as assistant controller, and her first assignment is to prepare the 2017 year-end adjusting entries for the accounts that are valued by the “fair value” rule for financial reporting purposes. Thomas has gathered the following information about Sweet’ pertinent accounts.

1.		Sweet has equity securities related to Delaney Motors and Patrick Electric. During 2017, Sweet purchased 100,000 shares of Delaney Motors for $1,377,000; these shares currently have a fair value of $1,517,000. Sweet’ investment in Patrick Electric has not been profitable; the company acquired 45,000 shares of Patrick in April 2017 at $21 per share, a purchase that currently has a value of $753,000.
2.		Prior to 2017, Sweet invested $22,353,000 in Norton Industries and has not changed its holdings this year. This investment in Norton Industries was valued at $21,677,000 on December 31, 2016. Sweet’ 12% ownership of Norton Industries has a current fair value of $22,196,000 on December 2017.

Part 1

New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is partially correct.

Prepare the appropriate adjusting entries for Sweet as of December 31, 2017, to reflect the application of the “fair value” rule for the securities described above. (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 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
(1)
(2)

eTextbook and Media

List of Accounts

Attempts: 1 of 2 used

Save for LaterSubmit Answer

Part 2

Prepare the entries for the Norton investment, assuming that Sweet owns 25% of Norton’s shares. Norton reported income of $505,000 in 2017 and paid cash dividends of $102,000. (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 0 for the amounts.)

No.	Account Titles and Explanation	Debit	Credit
(1)
	(To record revenue.)
(2)
	(To record dividends.)

Answer 1

ANSWER

1.

Date	General Journal	Debit	Credit
Dec. 31, 2017	Unrealized holding gain or loss	52,000
	Fair value adjustment (Trading)		52,000
	(To record securities at fair value)
Dec. 31, 2017	Fair value adjustment (Available-for-sale)	519,000
	Unrealized holding gain or loss		519,000
	(To record securities at fair value)

Working:

Investment	Cost $	Fair Value $	Unrealized Gain (Loss)
Delaney Motors	1,377,000	1,517,000	140,000
Patrick Electric	945,000	753,000	-192,000
Total	2,322,000	2,270,000	-52,000
Investment	Cost $	Fair Value $	Unrealized Gain (Loss)
Norton Industries	22,353,000	22,196,000	-157,000
Previous FV adjustment			-676,000
($21,677,000 - $22,353,000 )
FV adjustment required			519,000

2.

Date	General Journal	Debit	Credit
Dec. 31, 2017	Investment in Norton Industries	126,250
	Investment revenue (25% x $505,000 )		126,250
	(To record share in Norton's net income)
Dec. 31, 2017	Cash (25% x $102,000)	25,500
	Investment in Norton Industries		25,500
	(To record cash dividends received)

===========================================

DEAR STUDENT,

If you have any query or any Explanation please ask me in the comment box, i am here to helps you.please give me positive rating

*****************THANK YOU**************