Question

Indigo Company has the following securities in its portfolio on December 31, 2020. None of these investments are accounted for under the equity method. Investments Cost Fair Value 1,500 shares of Gordon, Inc., Common $79,600 $74,700 5,000 shares of Wallace Corp., Common 170,900 165,800 400 shares of Martin, Inc., Preferred 65,800 67,200 $316,300 $307,700 All of the securities were purchased in 2020. In 2021, Indigo completed the following securities transactions March 1 Sold the 1,500 shares of Gordon, Inc., Common, $45 less fees of $1,200 April Bought 700 shares of Earhart Corp., Common, $75 plus foes of $1,300 Indigo's portfolio of equity securities appeared as follows on December 31, 2021. Investments Cost Fair Value 5,000 shares of Wallace Corp., Common $170,900 $165,800 700 shares of Earhart Corp, Common 53,800 50,000 400 shares of Martin, Inc., Preferred 65,800 64,000 $290,500 $279.800 Prepare the general journal entrelor Indigo Company for: (a) The 2020 adjusting entry. (b) The sale of the Gordon stock The purchase of the Earhart stock The 2021 adjusting entry for the trading portfolio (Credit account titles are automatically indented when amount is entered. Do not indent manually. Ir no entry is required, select "No Entry" for the account titles and enter for the amounts.) No. Account Titles and Explanation Debat Credit

Answer 1

Solution A - Since the question does not specify specific control in any entity of the % of investment, equity method is not applicable.Revaluing the closing investment as per IFRS 9 the carrying value of closing investment should be at the fair market value and the difference is to be charged to Profit and loss statement.

Investment	cost	fair value	Difference to be carried to P&L
1,500 shares of Gordon Inc.Common	79,600	74,700	4,900
5,000 shares of Wallace corp	170,900	165,800	5,100
400 shares of Martin Inc.Preferred	65,800	67,200	-1,400

Adjusting Entry :

Particulars	Dr	Cr
Profit and loss	8,600
Investments in shares		8,600

Solution B :

Particulars	Dr	Cr
Cash	67,500
Investment		67,500
(1,500 shares of Gordon Inc.sold on March 1)
Fees on sale of shares	1,200
Bank		1,200
(Being fees paid on sale of Gordon Inc.)

Solution C :

Particulars	Dr	Cr
Investment	52,500
Cash		52,500
(Being purchase of 700 shares of Earnhart Corp)
Fees on sale of shares	1,300
Bank		1,300
(Being fees paid on purchase of Earnhart Corp.)

Solution D :

Since the question does not specify specific control in any entity of the % of investment, equity method is not applicable.Revaluing the closing investment as per IFRS 9 the carrying value of closing investment should be at the fair market value and the difference is to be charged to Profit and loss statement.

Investment	cost	fair value	Difference to be carried to P&L
700 shares of Earnhart Corp.Common	53,800	50,000	3,800
5,000 shares of Wallace corp	170,900	165,800	5,100
400 shares of Martin Inc.Preferred	65,800	64,000	1,800

Adjusting Entry :

Particulars	Dr	Cr
Profit and loss	10,700
Investments in shares		10,700