Question

Teal Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2017. The purchase price was $1,168,400 for 50,800 shares. Kulikowski Inc. declared and paid an $0.75 per share cash dividend on June 30 and on December 31, 2018. Kulikowski reported net income of $663,000 for 2018. The fair value of Kulikowski’s stock was $26 per share at December 31, 2018. Assume that the security is a trading security.

Prepare the journal entries for Teal Inc. for 2017 and 2018, assuming that Teal CANNOT exercise significant influence over Kulikowski

Prepare the journal entries for Teal Inc. for 2017 and 2018, assuming that Teal CAN exercise significant influence over Kulikowski.

Answer 1

Solution 1:

Journal Entries - Teal Inc.
Event	Date	Particulars	Debit	Credit
1	31-Dec-17	Investment in Theresa Kulikowski Inc. Dr	$1,168,400.00
		To Cash		$1,168,400.00
		(To record investment)
2	30-Jun-18	Cash Dr	$38,100.00
		To Dividend revenue		$38,100.00
		(To record share of dividend)
3	31-Dec-18	Cash Dr	$38,100.00
		To Dividend revenue		$38,100.00
		(To record share of dividend)
4	31-Dec-18	Fair value adjustment Dr	$152,400.00
		To Unrealized holding gain or loss - NI		$152,400.00
		(To record unrealized holding gain on trading investment)

Solution 2:

Journal Entries - Teal Inc.
Event	Date	Particulars	Debit	Credit
1	31-Dec-17	Investment in Theresa Kulikowski Inc. Dr	$1,168,400.00
		To Cash		$1,168,400.00
		(To record investment)
2	30-Jun-18	Cash Dr	$38,100.00
		To Investment in Theresa Kulikowski Inc.		$38,100.00
		(To record share of dividend)
3	31-Dec-18	Cash Dr	$38,100.00
		To Investment in Theresa Kulikowski Inc.		$38,100.00
		(To record share of dividend)
4	31-Dec-18	Investment in Theresa Kulikowski Inc. Dr	$132,600.00
		To Investment Income		$132,600.00
		(To record share of income in TK)