Question

Problem 12-7 Various transactions related to equity investments: fair value through net income [LO12-5) The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys equity securities as investments. None of Ornamental's investments are large enough to exert significant influence on the investee. Ornamental's fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017 Mar. 31 Acquired Distribution Transformers Corporation common stock for $550,000. Sep. 1 Acquired $1,125,000 of American Instruments' common stock Sep. 30 Received a $22,000 dividend on the Distribution Transformers common stock Oct. 2 Sold the Distribution Transformers common stock for $590,000 Nov. 1 Purchased $1,550,000 of M&D Corporation common stock. Dec. 31 Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are: American Instruments common stock M&D Corporation common stock $1,060,000 $1,625,000 Required 1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end. 2. Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments. Complete this question by entering your answers in the tabs below

Answer 1

1	Date	Account titles and explanation						Debit	Credit
	Mar 31.	Investment in distribution transformers corporation						550000
		Cash							550000
		(Acquired distribution transformers corporation common stock)
	Sep 1.	Investment in american instruments						1125000
		Cash							1125000
		(Acquired american instrument's common stock)
	Sep 30.	Cash						22000
		Investment revenue							22000
		(Received dividend)
	Oct 2.	Cash						590000
		Investment in distribution transformers corporation							550000
		Gain on sale of investment							40000
		(Sold distribution transformers corporation common stock)
	Nov 1.	Investment in M&D corporation						1550000
		Cash							1550000
		(Acquired M&D corporation's common stock)
	Dec 31.	Fair value adjustment					(Note:1)	10000
		Net unrealized holding gains and losses-OCI							10000
		(Market value adjusted)
	Note:1- Fair value adjustment
					Book value	Market price	Gain/(loss)
					1	2	(2-1)
	American instrument's common stock				1125000	1060000	-65000
	M&D corporation's common stock				1550000	1625000	75000
	Net gain						10000
2							$	$
	Income statement:
	Investment revenue							22000
	Gain on sale of investment							40000
	Statement of comprehensive income:
	Net unrealized holding gains and losses-OCI							10000
	Balance sheet:
			Assets
	Current assets
	Securities available for sale			(1125000+1550000)			2675000
	Add:Fair value adjustment						10000	2685000
			Shareholder's equity
	Accumulated other comprehensive income
	Net unrealized holding gains and losses							10000