Question

P16-3A On December 31, 2017. Turnball Associates owned the following securities, held as a long-term investment. The securities are not held for influence or control of the investee. Journalize adjusting investmer (LO 2,3) Common Stock Gehring Co. Wooderson Co. Kitselton Co. Shares 2,000 5,000 1,500 Cost $60,000 45,000 30,000 XLS On December 31, 2017, the total fair value of the securities was equal to its cost. In 2018, the following transactions occurred. Aug. 1 Received $0.50 per share cash dividend on Gehring Co. common stock. Sept. 1 Sold 1,500 shares of Wooderson Co. common stock for cash at $8 per share. Oct. 1 Sold 800 shares of Gehring Co. common stock for cash at $33 per share. Nov. 1 Received $1 per share cash dividend on Kitselton Co. common stock. Dec. 15 Received $0.50 per share cash dividend on Gehring Co. common stock. 31 Received $1 per share annual cash dividend on Wooderson Co. common stock At December 31, the fair values per share of the common stocks were: Gehring Co. $32, Wooderson Co. $8, and Kitselton Co. $18. Instructions (a) Journalize the 2018 transactions and post to the account Stock Investments. (Use the T-account form.) (b) Prepare the adjusting entry at December 31, 2018, to show the securities at fair value. (b) The stock should be classified as available-for-sale securities. (c) Show the balance sheet presentation of the investments at December 31, 2018. At this date. Turnball Associates has common stock $1,500,000 and retained earnings $1,000,000.

Answer 1

a)
Date	Account Titles and Explanation	Debit	Credit
Aug. 1	Cash (2,000 shares * $0.50 per share)	$1,000
	Dividends Revenue		$1,000
	(To record the receipt of cash dividends on Gehring Co.)
Sept. 1	Cash (1,500 shares * $8 per share)	$12,000
	Loss on sale of stock investments ($13,500 - $12,000)	$1,500
	Stock Investments ($45,000/5,000 units = $9 * 1,500 units)		$13,500
	(To record the sale of 1,500 shares at loss)
Oct. 1	Cash (800 shares * $33 per share)	$26,400
	Stock Investments ($60,000/2,000 units = $30 * 800 units)		$24,000
	Gain on sale of stock investments ($26,400 - $24,000)		$2,400
	(To record the sale of 800 shares at gain)
Nov. 1	Cash (1,500 shares * $1 per share)	$1,500
	Dividends Revenue		$1,500
	(To record the receipt of cash dividends Kitselton Co.)
Dec. 15	Cash (2,000 shares - 800 = 1,200 shares * $0.50 per share)	$600
	Dividends Revenue		$600
	(To record the receipt of cash dividends on Gehring Co.)
Dec. 31	Cash (5,000 shares - 1,500 = 3,500 shares * $1 per share)	$3,500
	Dividends Revenue		$3,500
	(To record the receipt of cash dividends on Wooderson Co.)

Stock Investments
Beg. Bal. ($60,000 + $45,000 + $30,000)	$135,000	Sept. 1 - Sales	$13,500
		Oct. 1 - Sales	$24,000
End. Bal. ($135,000 - $13,500 - $24,000)	$97,500

b)
Date	Account Titles and Explanation	Debit	Credit
Dec. 31	Unrealized Loss - Equity ($97,500 - $93,400)	$4,100
	Market Adjustment - Available-for sale		$4,100
	(To record the loss at the end of the period)
	Working notes:	Cost	Fair Value
	Gehring Co. ($60,000 - $24,000); (2,000 - 800 = 1,200 * $32)	$36,000	$38,400
	Wooderson Co. ($45,000 - $13,500); (5,000 - 1,500 = 3,500 * $8)	$31,500	$28,000
	Kitselton Co. (1,500 * $18)	$30,000	$27,000
		$97,500	$93,400

c)

Turnball Associates
Partial Balance Sheet
Stockholders' equity:
Common Stock	$1,500,000
Retained earnings	$1,000,000
Total paid in capital	$2,500,000
Less: Unrealizaed on loss	($4,100)
Total Shareholders' Equity	$2,495,900