Question

19. Porter Company purchased 1,400 shares of the Krafty Group common stock for $53,200 (i.e., $38 per share) at the beginning of the current year. There were 28,000 outstanding Krafty shares on the date of acquisition. Porter Company classifies its investment in Krafty as part of its available-for-sale portfolio. Total stockholders' equity of Krafty Company is $1,090,000 on the date of acquisition. Krafty reported $350,000 in net income and declared and paid $1.70 per share cash dividends at year-end. Read the requirements Requirement a. Prepare the journal entry to record the purchase of the Krafty shares. (Record debits first, then credits. Exclude explanations from any journal entries.) Account Acquisition Available-for-Sale Equity Investments 53,200 Cash 53,200 Requirement b. Prepare the journal entries necessary to reflect Porter's share of Krafty's dividends. (Record debits first, then credits. Exclude explanations from any journal entries.) Account Year-End (1) Cash (2) Dividend Income (3 (4) Requirement c. Prepare the journal entry required to adjust Porter's available-for-sale investment to its fair value of $49 per share at year-end. (Record debits first, then credits. Exclude explanations from any journal entries. If no entry is required select "No Entry Required" on the first line of the journal entry table and leave all remaining cells in the table blank.) Account Year-End (5) (6) (7) (8) Requirement d. Prepare the journal entry necessary to record the sale of 700 Krafty shares for $58 per share at the beginning of the next year. (Record debits first, then credits. Exclude explanations from any journal entries.) Account Beginning of Year 2 (9) (10) (11) (12) 1: Requirements

Answer 1

	Assumption
	1	We understand that meaning of "There were 28000 outstanding shares on the date of acquisition" as porter company is already holding 28000 shares at the beginning of the year. Entries are also passed accordingly
	2	Because of lack of information on shares at the beginning of the year, we considered LIFO for disposal of investment
	Requirements
	Sl No	Account	Dr/Cr	Debit	Credit
	a	Short term Investments - Krafty shares	Dr	53,200
		To Bank A/c			(53,200)
	Being Shares purchased through bank
	b	Bank A/c	Dr	49,980
		To Dividend Income			(49,980)
	Being Dividend income declared and received on Krafty shares
	c	No entry required
	d	Bank	Dr	40,600
		To Gain on Sale of Investments			(14,000)
		To Short term Investments - Krafty shares			(26,600)

Thank you