Question

Forte Inc. produces and sells theater set designs and costumes. The company began operations on January 1, Year 1. The following transactions relate to securities acquired by Forte Inc., which has a fiscal year ending on December 31:

Record these transactions on page 10:

Year 1
Jan.	22	Purchased 22,000 shares of Sankal Inc. as an available-for-sale security at $18 per share, including the brokerage commission.
Mar.	8	Received a cash dividend of $0.22 per share on Sankal Inc. stock.
Sep.	8	A cash dividend of $0.25 per share was received on the Sankal stock.
Oct.	17	Sold 3,000 shares of Sankal Inc. stock at $16 per share less a brokerage commission of $75.
Dec.	31	Sankal Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $25 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment.

Record these transactions on page 11:

Year 2
Jan.	10	Purchased an influential interest in Imboden Inc. for $720,000 by purchasing 96,000 shares directly from the estate of the founder of Imboden Inc. There are 300,000 shares of Imboden Inc. stock outstanding.
Mar.	10	Received a cash dividend of $0.30 per share on Sankal Inc. stock.
Sep.	12	Received a cash dividend of $0.25 per share plus an extra dividend of $0.05 per share on Sankal Inc. stock.
Dec.	31	Received $57,600 of cash dividends on Imboden Inc. stock. Imboden Inc. reported net income of $450,000 in Year 2. Forte Inc. uses the equity method of accounting for its investment in Imboden Inc.
Dec.	31	Sankal Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $22 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the decrease in fair value from $25 to $22 per share.

	Required:
1.	Journalize the entries to record these transactions. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries.
2.	Prepare the investment-related asset and stockholders’ equity balance sheet presentation for Forte Inc. on December 31, Year 2, assuming that the Retained Earnings balance on December 31, Year 2, is $389,000. Refer to the Chart of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. “Less” or “Plus” will automatically appear if it is required. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

CHART OF ACCOUNTS
Forte Inc.
General Ledger
ASSETS 110 Cash 111 Petty Cash 120 Accounts Receivable 121 Allowance for Doubtful Accounts 131 Notes Receivable 132 Interest Receivable 141 Merchandise Inventory 145 Office Supplies 146 Store Supplies 151 Prepaid Insurance 161 Investments-Sankal Inc. 163 Investment in Imboden Inc. Stock 165 Valuation Allowance for Trading Investments 166 Valuation Allowance for Available-for-Sale Investments 181 Land 191 Store Equipment 192 Accumulated Depreciation-Store Equipment 193 Office Equipment 194 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 221 Notes Payable 231 Interest Payable 241 Salaries Payable 251 Sales Tax Payable EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Treasury Stock 332 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 350 Unrealized Gain (Loss) on Available-for-Sale Investments 351 Cash Dividends 352 Stock Dividends 390 Income Summary	REVENUE 410 Sales 611 Interest Revenue 612 Dividend Revenue 621 Income of Imboden Inc. 631 Gain on Sale of Investments 641 Unrealized Gain on Trading Investments EXPENSES 511 Cost of Merchandise Sold 512 Bad Debt Expense 515 Credit Card Expense 516 Cash Short and Over 520 Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Repairs Expense 534 Selling Expenses 535 Rent Expense 536 Insurance Expense 537 Office Supplies Expense 538 Store Supplies Expense 561 Depreciation Expense-Store Equipment 562 Depreciation Expense-Office Equipment 590 Miscellaneous Expense 710 Interest Expense 721 Loss of Imboden Inc. 731 Loss on Sale of Investments 741 Unrealized Loss on Trading Investments

Amount Descriptions
Available-for-sale investments (at cost)
Available-for-sale investments (at fair value)
Net income
Net loss
Other comprehensive income (loss)
Other income (loss)
Trading investments (at cost)
Trading investments (at fair value)

1a. Journalize the entries to record Year 1 transactions. Be sure to enter the year as part of the date for the first entry on each page. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries.

1b. Journalize the entries to record Year 2 transactions. Be sure to enter the year as part of the date for the first entry on each page. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries.

2. Prepare the investment-related asset and stockholders’ equity balance sheet presentation for Forte Inc. on December 31, Year 2, assuming that the Retained Earnings balance on December 31, Year 2, is $389,000. Refer to the Chart of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. “Less” or “Plus” will automatically appear if it is required. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Answer 1

Account title Debit Credit Date Year 1 Jan 22 vestments-Sankal Inc. 396000 cash 396000 22000 18 Mar. 8 Cash 4840 Dividend Revenue 4840 22000 0.22 Sep 8. Cash 5500 Dividend Revenue 5500 22000 0.25 Oct 17. cash-3000 16-75 47925 Loss on Sale of Investments 6075 Investments-Sankal Inc. 396000 3000/22000 54000 Dec 31.valuation allowance for available-for-sale investments 133000 Unrealized Gain (Loss) on Available-for-Sale Investments 133000 Year 2 Jan 10. vestment in Imboden Inc. Stock 720000 Cash 720000 Mar 10. Cash 5700 Dividend Revenue 5700 19000 0.30 Sep 12. Cash 5700 Dividend Revenue 5700 (0.25+0.05) 19000 Dec 31. Cash 57600 Diviend) Investment in Imboden Inc. Stock 57600 Dec 31. nvestment in Imboden Inc. Stock 144000 Income) Income of Imboden Inc. 144000 (450000 96000/300000) Dec 31.Unrealized Gain (Loss) on Available-for-Sale Investments57000 valuation allowance for available-for-sale investments 57000

Forte Inc. Bal ance Sheet (selected items) December 31, Year 2 current asset Available for sal e investment at cost 342,000 add: valuation allowance for available for sale investments (16000-6400) 76,000 available for sal e investment at fair value 418,000 investment Investment in Imboden Inc. Stock (72000-57600 144000) 806,400 Retained earning unrealised gain (loss) on available for sale investments

**Workin # Shares | FV per share Total FV | Unrealized Gain/( Loss) cost Year 1 Sankal Inc. 342000 19000 25 475000 133000 396000-54000) (220003 Year 2 Sankal Inc. 342000 19000 22418000 76000 Gain already recognized in previousyears 133000 Gain/(Loss) to be recognized 57000