Question

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 $590,000 Sep. Acquired $1,185,000 of American Instruments' common stock Sep. 30 Received a $20,650 dividend on the Distribution Transformers common stock Oct. 2 Sold the Distribution Transformers common stock for $634,000 Nov. 1 Purchased $1,590,000 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 $1,116,000 M&D Corporation common stock 1,669,000 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.

Answer 1

date	General journal	debit	credit
March. 31 2018	Investment in Distribution Transformers shares	590000
	Cash		590000
	(to record the acquisition of Distribution Transformers corporation common stock)
Sept. 1 2018	Investment in American Instruments bonds	1185000
	Cash		1185000
	(to record the acquisition of American Instrument’s common stock)
Sept. 30 2018	Cash	20650
	Dividend revenue		20650
Oct. 2 2018	Fair value adjustment	44000
	Unrealized holding gain – NI (634000-590000)		44000
	(to adjust to fair value on the date of sale of the Distribution Transformers bonds)
Oct. 2 2018	Cash	634000
	Investment in Distribution Transformers shares		590000
	Gain on sale of investments		44000
	(to record sale of Distribution Transformers corporation common stock)
Nov. 1 2018	Investment in M&D corporation shares	1590000
	Cash		1590000
	(to record the acquisition of M&D corporation common stock)
Dec. 31 2018	Fair value adjustment
	Net unrealized holding gains and losses—OCI	10000
	(1116000-1185000)+(1669000-1590000)		10000
	(to record fair-value adjustment)

Part 2

Income statement:
Investment revenue		20650
Gain on sale of investments		44000
Net income		64650
Statement of comprehensive income:
Net income		64650
Net unrealized holding gains on investments		10000
Total comprehensive income		74650
Balance sheet:
Assets
Current assets
Investment revenue receivable		0
Investments
Securities available for sale	2775000
Add: fair value adjustment	10000	2785000
Shareholders’ equity
Accumulated other comprehensive income
Net unrealized holding gain		10000

=1185000+1590000 = 2775000