Question

Stock Investment Transactions, Equity Method and Available-for-Sale Securities

Glacier Products Inc. is a wholesaler of rock climbing gear. The company began operations on January 1, Year 1. The following transactions relate to securities acquired by Glacier Products Inc., which has a fiscal year ending on December 31:

Year 1
Jan. 18.	Purchased 6,500 shares of Malmo Inc. as an available-for-sale investment at $48 per share, including the brokerage commission.
July 22.	A cash dividend of $0.45 per share was received on the Malmo stock.
Oct. 5.	Sold 2,900 shares of Malmo Inc. stock at $51 per share less a brokerage commission of $35.
Dec. 18.	Received a regular cash dividend of $0.45 per share on Malmo Inc. stock.
Dec. 31	Malmo Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $45 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment.
Year 2
Jan. 25.	Purchased an influential interest in Helsi Co. for $690,000 by purchasing 52,500 shares directly from the estate of the founder of Helsi. There are 150,000 shares of Helsi Co. stock outstanding.
July 16.	Received a cash dividend of $0.55 per share on Malmo Inc. stock.
Dec. 16.	Received a cash dividend of $0.55 per share plus an extra dividend of $0.10 per share on Malmo Inc. stock.
Dec. 31	Received $21,000 of cash dividends on Helsi Co. stock. Helsi Co. reported net income of $86,000 in Year 2. Glacier Products Inc. uses the equity method of accounting for its investment in Helsi Co.
Dec. 31	Malmo Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $51 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the increase in fair value from $45 to $51 per share.

Required:

1. Journalize the entries to record the preceding transactions. For a compound transaction, if an amount box does not require an entry, leave it blank. In your computations, round per share amounts to two decimal places.

Date	Description	Debit	Credit
Year 1
Jan. 18.
July 22.
Oct. 5.
Dec. 18.
Dec. 31
Year 2
Jan. 25.
July 16.
Dec. 16.
Dec. 31-Dividends
Dec. 31-Income
Dec. 31-Valuation

2. Prepare the investment-related asset and stockholders’ equity balance sheet presentation for Glacier Products Inc. on December 31, Year 2, assuming that the Retained Earnings balance on December 31, Year 2, is $504,000.

Glacier Products, Inc. Balance Sheet (selected items) December 31, Year 2
Current Assets:
Investments:
Stockholders' Equity:

Answer 1

Ans- Journal Entries

Date	Account Title and Explanation	Debit ($)	Credit ($)
Jan.18	Investments- Malmo Inc.	312,000
	Cash		312,000
	6,500 shares *$48 per share
July 22	Cash	2,925
	Dividend Revenue		2,925
	6,500 shares *$0.45 per share
Oct.5	Cash *	147,865
	Gain on Sale of Investments		8,665
	Investments -Malmo Inc.		139,200
	*(2,900 shares*$51)-$35
	2,900 shares *48 per share
Dec. 18	Cash	1,620
	Dividend Revenue		1,620
	(6,500 shares - 2,900 shares) *$0.45
Dec.31	Unrealized Gain (Loss) on Available for Sale Investments	10,800
	Valuation Allowance for Available for Sale Investments		10,800
	(3,600 shares*($45-$48)
Year 2
Jan.25	Investment in Helsi Co. Stock	690,000
	Cash		690,000
July 16	Cash	1,980
	Dividend Revenue		1,980
	3,600 shares *$0.55
Dec.16	Cash	4,225
	Dividend Revenue		4,225
	(6,500 shares * ($0.55+$ 0.10)
Dec. 31	Cash	21,000
	Investment in Helsi Co. Stock		21,000
Dec.31	Investment in Helsi Co. Stock	30,100
	Income of Helsi Co.		30,100
	To record 35% of Helsi Co. Income $86,000*(52,500 shares/ 150,000 shares)
Dec.31	Valuation Allowance for Available for Sale Investments	21,600
	Unrealized Gain (Loss) on Available for Sale Investments		21,600
	3,600 shares ($51-$45)

2- GLACIER PRODUCTS INC.

Balance Sheet (selected items)

December 31, Year 2

Current Assets:
Available for sale investments (at cost)1	172,800
Add: Valuation allowance for available for sale investments	3,600
Available for sale investments (at fair value)2		183,600
Investments:
Investments in Helsi Co. Stock 3		$699,100
Stockholders' equity:-
Retained Earnings		$504,000
Unrealized gain (loss) on available for sale investments		$10,800

1-3,600 shares *$ 48 per share

2-3,600 shares *$51 per share

3- $690,000+30,100-$21,000