Goff Corporation acquired stock of Spiegel, Inc., on March 1, 2016, at a cost of
ID: 2337551 • Letter: G
Question
Goff Corporation acquired stock of Spiegel, Inc., on March 1, 2016, at a cost of $500,000. The stock had a fair value of $550,000 at December 31, 2016, $610,000 at December 31, 2017, and $590,000 at December 31, 2018. Goff sold the stock for $640,000 on July 1, 2019. Spiegel did not pay any dividends during the time Goff held the stock.
When Goff acquired the stock, it classified the investment as available-for-sale. However, Goff transitioned to the new accounting rules for minority-passive equity investments at the beginning of 2018.
Ignore income taxes.
Assume the amount credited to OCI each year was subsequently closed to AOCI during the closing process.
Required:
Prepare the journal entry to record the acquisition of the Spiegel stock at March 1, 2016.
Prepare the journal entry to record the fair value adjustment at December 31, 2016.
Prepare the journal entry to record the fair value adjustment at December 31, 2017.
Prepare the journal entry to record the transition to the new accounting for minority-passive investments at January 1, 2018.
Prepare the journal entry to record the fair value adjustment at December 31, 2018.
Prepare the journal entry to record the sale of the investment at July 1, 2019.
(For all requirements, if no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Explanation / Answer
Solution:
Gven data,
Goff Corporation acquired stock of Spiegel, Inc., on March 1, 2016, at a cost of $500,000.
The stock had a fair value of $550,000 at December 31, 2016,
$610,000 at December 31, 2017,
and $590,000 at December 31, 2018.
Goff sold the stock for $640,000 on July 1, 2019.
Spiegel did not pay any dividends during the time Goff held the stock.
When Goff acquired the stock, it classified the investment as available-for-sale. However, Goff transitioned to the new accounting rules for minority-passive equity investments at the beginning of 2018.
JOURNAL ENTRIES for Goff Corporation
JOURNAL ENTRIES for Goff Corporation
Date Particulars Amount ($) Amount ($) March 1,2016 Investment in available for sale securities dr 500,000 To cash 500,000 (To enter acquisition of spiegel stock) Date Particulars Amount ($) Amount ($) Dec 31, 2016 Investment in available for sale securities dr 50,000 To Unrealised gain / loss - other comprehensive income (550,000 - 500,000) 50,000 (To enter the fair value adjustment to investment)Date Particulars Amount ($) Amount ($) Dec 31, 2017 Investment in available for sale securities dr 60,000 To Unrealised gain / loss - other comprehensive income (610,000 - 550,000) 60,000 (To enter the fair value adjustment to investment)
Date Particulars Amount ($) Amount ($) Jan 1, 2018 Unrealised gain / loss - other comprehensive income dr 110,000 To Investment in available for sale securities (610,000 - 500,000) 110,000 (To enter transition to new accounting for minarity passive invesments)
Date Particulars Amount ($) Amount ($) Dec 31, 2018 No entry (As cost is less than the fair value and the investment is already recorded at cost)
Date Particulars Amount ($) Amount ($) July 1, 2019 Cash dr 640,000 To Investment in available for sale securities 500,000 To gain on sale of available for sale investment 140,000 (To enter sale of investment)
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