Question

I need the answer to this problem in Accounting using excel for success, 2nd edition. PR15-3A Stock investment transactions, equity method and available-for-sale securities.

White Way Inc., produces and sells theater set designs and costumes. the company began operations on January 1,2012. The following transactions relate to securities acquired by White Way Inc, which has a fiscal year ending on December 31:

2012

Jan.10. Purchased 8,000 shares of Lott Inc as an available-for-sale security at $14 per share, including the brokerage commission.

Mar.10. Received the regular cash dividend of the $0.12 per share on Lott Inc. stock.

Sept.9. Lott Inc. stock was split two for one. The regular cash dividend of $0.06 per share was received on the stock after the stock split.

Oct. 16, Sold 2,000 shares of Lott Inc. stock at $5 per share, less a brokerage commission of $100.

Dec. 31. Lott Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $8.50 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment.

2013

Jan. 5. Purchased an influential interest in Stage Hand Inc. for $235,000 by purchasing 50,000 shares directly from the estate of the founder of Stage Hand Inc. There are 200,000 shares of Stage Hand Inc. stock outstanding.

Mar. 9, Received the regular cash divided of $0.07 per share on the Lott Inc. stock

Sept. 10. Received the regular cash dividend of $0.07 per share plus an extra dividend of $0.03 per shar on Lott Inc. stock

Dec.31. Received $21,500 of cash dividends on Stage Hand Inc. stock. Stage Hand Inc. reported net income of $136.000 in 2013. White Way Inc. uses the equity method of accounting for its investment in Stage Hand Inc.

Dec.31 Lott Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $8 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the decrease in fair value from $8.50 to $8.00 per share.

Instructions

1) Journalize the entries to record these transactions.

2) Prepare the investment-related asset and the stockholders' equity balance sheet disclosures for White Way Inc. on December 31, 2013, assuming the Retained Earnings balance on December 31, 2013, is $310,000

Answer 1

Date	Accounts Title and Explanation	Debit($)	Credit($)
2012
Jan. 10	Investments—Lott Inc.*	$ 112,000
	Cash		$ 112,000
	*8,000 shares × $14 per share
Mar. 10	Cash*	$        960
	Dividend Revenue		$        960
	*8,000 shares × $0.12 per share
Sept. 9	Cash*	$        960
	Dividend Revenue		$        960
	*16,000 shares × $0.06 per share
Oct. 16	Cash*	$     9,900
	Loss on Sale of Investments	$     4,100
	Investments—Lott Inc.**		$   14,000
	*(2,000 shares × $5.00) – $100
	**2,000 shares × $7 per share
Dec. 31	Valuation Allowance for Available-for-Sale Investments	$   21,000
	Unrealized Gain (Loss) on Available-for-Sale Investments		$   21,000
	14,000 shares × ($8.50 – $7.00).
2013
Jan. 5	Investment in Stage Hand Inc. Stock	$ 235,000
	Cash		$ 235,000
Mar. 9	Cash*	$        980
	Dividend Revenue		$        980
	*(16,000 shares – 2,000 shares) × $0.07 per share
Sept. 10	Cash*	$     1,400
	Dividend Revenue		$     1,400
	*14,000 shares × ($0.07 + $0.03)
Dec. 31	Cash	$   21,500
	Investment in Stage Hand Inc. Stock		$   21,500
Dec. 31	Investment in Stage Hand Inc. Stock	$   34,000
	Income of Shouse Inc.		$   34,000
	To record 25% of Stage hand Inc. income
	$136,000 × (50,000 shares ÷ 200,000 shares).
Dec. 31	Unrealized Gain (Loss) on Available-for-Sale Investments	$     7,000
	Valuation Allowance for Available-for-Sale Investments*		$     7,000
	*($8.00 – $8.50) × 14,000 shares
	WHITE WAY INC.
	Balance Sheet (selected items)
	December 31, 2013
	Current assets:
	Available-for-sale investments (at cost)1	$   98,000
	Plus valuation allowance for available-for-sale investments	14,000
	Available-for-sale investments (at fair value)2		$ 112,000
	Investments:
	Investment in Stage Inc. stock3		$ 247,500
	Stockholders’ equity:
	Retained earnings		$ 310,000
	Unrealized gain (loss) on available-for-sale investments		14,000
	1 14,000 shares × $7 per share
	2 14,000 shares × $8 per share
	3 $235,000 + $34,000 – $21,500