Learning Objectives 3, 4 P-23B Accounting for equity investments The beginning b

Question

Learning Objectives 3, 4 P-23B Accounting for equity investments The beginning balance sheet of Text Source Co. included a $700,000 investment in Taylor stock (20% ownership). 1. Dec. 31 Fair Value Adjustment-Equity Investments DR $5,000 During the year, Text Source completed the following investment transactions: Mar. 3 Purchased 5,000 shares at $13 per share of Josh Software common stockas along term equity investment, representing 3% ownership, no significant influence. May 15 Received a cash dividend of $0.69 per share on the Josh investment. Received a cash dividend of $100,000 from Taylor investment. Received Taylor's annual report showing $100,000 of net income. Received Josh's annual report showing $620,000 of net income for the year. Taylor's stock fair value at year-end was $620,000. Josh's common stock fair value at year-end was $14 per share. Dec. 15 31 31 31 31 Requirements 1. Journalize the transactions for the year of Text Source 2. Post transactions to T-accounts to determine the December 31, 2018, balances related to the investment and investment income accounts. 3. Prepare Text Source's partial balance sheet at December 31, 2018, from your answers in Requirement 2. 4. Where is the unrealized holding gain or loss associated with the Josh stock reported?

Explanation / Answer

1) Journalise : Date Accounts Titles Debit $ Credit $ 3-Mar Available for sale security 65000 Cash 65000 (being purchase of Josh CS) 15-May Cash 3450 Dividend revenue 3450 5000*0.69 15-Dec Cash 100000 Equity investment in Taylor 100000 (being dividend received from Taylor) 31-Dec Equity investment in Taylor 20000 Taylor's Net Income 20000 (being 20% share of taylor's income booked) 31-Dec NO ENTRY 31-Dec NO ENTRY 31-Dec Available for sale security 5000 Unrealised holding gain 5000 (being josh CS are valued to Fair value and unrealised holding gain booked) 2) T- ACCOUNTS: DEBIT AMOUNT $ CREDIT AMOUNT$ Equity investment in Taylor ob 700000 cash 100000 Taylor's net income 20000 cb 620000 Available for sale security 3-Mar 65000 cb 70000 31-Dec 5000 Cash account 15-May 3450 3-Mar 65000 15-Dec 100000 cb 38450 Dividend revenue 15-May 3450 Unrealised holding gain 31-Dec 5000 3) Partial Balance Sheet: Liabilities Amount $ Assets Amount $ Dividend revenue 3450 Cash 38450 Unrealised holding gain 5000 Available for sale security 70000 Equity investment in Taylor 620000 4)The unealised holding gain or loss is associated with Retained Earnings on the liabilities side of balance sheet.

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