Question

Tamarisk Ltd. is a Canadian publicly-traded business with a December 31 fiscal year end. In order to get a better return on some of its excess cash, Tamariskpurchased 150 common shares of AFS Corporation on July 1, 2020 at a price of $7 per share. Due to the nature of the investment Tamarisk’s management is accounting for the equity investment using the fair-value through other comprehensive income (FV-OCI) without recycling to net income. On August 1, 2020, AFS declared dividends of $1/share, and paid those dividends on August 20, 2020. On December 31, 2020, shares in AFS were trading at $9 per share. On September 15, 2021, Tamarisk sold the shares in AFS for $10 per share.

Prepare the journal entries required to record the above transactions on the books of Tamarisk Ltd. (Credit account titles are automatically indented when the 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. Record journal entries in the order presented in the problem.)

Account Titles and Explanation Date Debit Credit (To adjust to fair value on date of disposition) (To record disposal) Fair Value-Other Comprehensive Income (OCI) without recycling: (To reclassify holding gain)

Answer 1

Ans: Entries required to be done by Tamarisk Ltd
1-Jul-20	Investments	Dr	$ 1,050.00	(150 shares * 7 price)
	Cash	Cr	$ 1,050.00
1-Aug-20	Dividend Receivable	Dr	$     150.00	(150 shares * $1 dividend)
	Investments	Cr	$     150.00
	(This treats dividends as a return of the investment (not income, because the income is recorded as it is earned rather than when distributed). In the case of dividends, consider that the investee’s equity reduction is met with a corresponding proportionate reduction of the Investment account on the books of the investor)
20-Aug-20	Cash	Dr	$     150.00
	Dividend Receivable	Cr	$     150.00
	(Being dividends received)
As required by FAS 115, the value of an investment accounted for under the cost method should be adjusted to current fair value at the end of each accounting period, in cases where the fair value is readily determinable. Changes in fair value are debited (for gains in fair value) or credited (for losses) to a fair value adjustment account reported on the balance sheet to adjust the investment account balance to its end of period fair value.
31-Dec-20	Investments	Dr	$     300.00	(150 shares * 2 (gain in share price))
	(Unrealized gain) in other comprehensive income	Cr	$     300.00
15-Sep-21	Cash	Dr	$ 1,500.00	(150 shares * 10 price per share)
	(Unrealized gain) in other comprehensive income	Dr	$300.00
	Investments	Cr	$ 1,200.00
	Gain on sale of investment	Cr	$     600.00