These are journal entries of 2 years' investments transactions. Rules of double entry system will apply on these investment transactions. See detail problem before getting its solution.
Date of Asking Question
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3/2/2014
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Name
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Candy
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Country
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USA
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Title of Question
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help with a question
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Detail of Question
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In problem PR 15-1A I need help find out to work the part one and part 2 of the problem.
In acct 2 text book warren reeve duchac accounting 23e. pages 697-698-- roman products, Inc. is a wholesaler of men hair products. the company began operations on Jan. 1, 2010. the following transactions relate to securities acquired by roman products inc. which has a fiscal year ending in Dec.31 2010. I am in need of how to work out the excel problems . Year 2010 jan.3 purchased 3000 shares of whalen inc. as an available for sale investment at $46 per share including the brokerage commission july 6 split whalen inc. stock 2 for 1 and received the regular cash dividend of $0.60 per share on the whalen inc. stock after the split. Oct. 14 sold 900 shares of whalen inc stock at $25 per share , less a brokerage commission of $50. Dec. 9 Received the regular cash dividend of $0.60 per share . Dec. 31 Whalen inc. is classified as an available for sale investment and is adjusted to fair value of $21 per share. Use the Valuation allowance for available for sale investment account in making the adjustment. Year 2011 Jan 5 Purchased an influential interest in Tasmania co. for $620,000 by purchasing 60,000 shares directly from the estate of the founder of Tasmania . there are 150,000 share of Tasmania Co. stock outstanding . July 8. received the regular cash divided of $0.70 per share on whalen inc. stock. Dec.8. received the regular cash dividend of $0.70 per share plus an extra dividend of $0.15 per share on whalen inc. stock. 31 received $18,000 of cash dividends on Tasmania Co. stock Tasmania Co. reported net income of $74,000 in 2011. Roman products uses the equity method of accounting for its investment in Tasmania Co. 31. Whalen Inc. is classified as an available for sale investment and is adjusted to fair value of $26 per share. use the valuation allowance for available for sale investments account in making the adjustment. You have to : 1. Journalize the entries to record the preceding transactions. |
Solution
Journal Entries
Jan. 3, 2010
Shares Investments in Whalen Inc. Dr. 138000
Bank Account Cr. 138000
July 6, 2010
Now, when in 6 july 2010, shares' stock will be split 2 for every 1, it means number of shares will be double. So, dividend will increase as per this rule
Dividend Received
3000 X 2 X 0.60 = $ 3600
Bank Account Dr. 3600
Dividend Received Account Cr.3600
Oct. 14, 2010
Sold 900 shares @ $ 25 per share less brokerage commission $ 50
If we want to calculate the profit on this sale, we have to calculate the real cost of these shares.
Cost of 900 shares
= 138000 X 900/ 6000 = $ 20700
Net sale value of 900 shares = (900 X $ 25 ) - $50 = $ 22450
Profit on sale of 900 shares = $ 1750
Bank Account Dr. 22450
Share investment in Whalen Inc. Cr. 20700
Profit on Sale of Share Investment in Whalen Inc. Cr. 1750
Dec. 9, 2010
Balance shares in hand = 6000 -900 = 5100
Dividend = 0.60 x 5100 =$ 3060
Bank Account Dr. 3060
Dividend Received Cr. 3060
Dec. 31, 2010
Fair Value of Per share after sale
= ( 138000 - 20700 )/ 5100 = $ 23 per share
New fair value = $ 21
Unrealized loss due to changing fair value
= $ 23 -$ 21 = $ 2
5100 X 2 = $ 10200
Unrealized loss of shares investment in Whalen Inc. Dr. 10200
Valuation Allowance for Available-for-Sale Investment Cr. 10200
Jan. 5, 2011
Investments in Tasmania Co. Dr. 620000
Bank Account Cr. 620000
July 8, 2011
Balance shares in hand = 6000 -900 = 5100
Dividend = 0.70 x 5100 = $ 3570
Bank Account Dr. 3570
Dividend Received from Whalen Inc. Cr. 3570
Dec. 8, 2011
Balance shares in hand = 6000 -900 = 5100
Dividend = (0.70+ 0.15) x 5100 = $ 4335
Bank Account Dr. 4335
Dividend Received from Whalen Inc. Cr. 4335
Dec. 31, 2011
Bank Account Dr. 18,000
Investment in Tasmania Inc. Cr.18,000
Dec. 31, 2011
.Fair value increased from $ 21 per share to $ 26 per share
Unrealized gain due to changing fair value
= $ 26 -$ 21 = $ 5
5100 X 5 = $ 25500
Valuation Allowance for Available-for-Sale Investment Dr. 25500
Unrealized Gain of shares investment in Whalen Inc. Cr. 25500
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