Forte Inc. produces and sells theater set designs and costumes. The company bega

Question

Forte Inc. produces and sells theater set designs and costumes. The company began operations on January 1, 2016. The following transactions relate to securities acquired by Forte Inc., which has a fiscal year ending on December 31:

Record these transactions on page 10:

Record these transactions on page 11:

2016 Jan. 22 Purchased 22,000 shares of Sankal Inc. as an available-for-sale security at $18 per share, including the brokerage commission. Mar. 8 Received a cash dividend of $0.22 per share on Sankal Inc. stock. Sep. 8 A cash dividend of $0.25 per share was received on the Sankal stock. Oct. 17 Sold 3,000 shares of Sankal Inc. stock at $16 per share, less a brokerage commission of $75. Dec. 31 Sankal Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $25 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment.

Explanation / Answer

Answer:A   Journal entry:

2016

22 jan Available for Sale Securities A/C Dr. $396000 (22000*18)

               To cash A/C                                               $396000

8 March Cash A/C Dr.$4840

                    To Dividend Income A/C                    $4840 (22000*0.22)

8 Sept Cash A/C Dr.$5500

                    To Dividend Income A/C                    $5500 (22000*0.25)

17 Oct    Cash A/C Dr.                                     $47925 ((3000*16)-75)
               Loss on sale of investmentA/C Dr.       $6075
                             To investments-Sankal inc.                               $54000 (3000*18)

31 Dec       Avail-for-Sale Securities A/C Dr. $133000 (19000*7)

                          To Unrealized Gain                             $133000

2017:

10 jan Dr Investment in Imboden Inc. 720,000
          Cr Cash 720,000

10 Mar. Cash A/C Dr.$5700

                    To Dividend Income A/C                    $5700 (19000*0.30)

12 Sept Cash A/C Dr.$5700

                    To Dividend Income A/C                    $5700 (19000*(0.25+0.05))

31 Dec Cash A/C Dr.$57600

                    To Investment in Imboden Inc. A/C                    $57600

Imboden Inc. reported net income of $450,000 in 2017.
96000 /300,000 x 450,000 = $144000 portion of revenue going to Roman
Dr Investment in Imboden inc. 144000
Cr Revenue from Investment 144000

31 Dec Dr Unrealized Holding Gain or Loss $57000 (19000*3)

           Cr. Valuation Allowance for Available-for-Sale Investment $57000

Answer:B

Investment in Sankal Inc. can be under current or non-current assets, depending on management's intention. I'll put it under non-current for convenience.
In the balance sheet:
Non-current assets
Investment in available-for-sale assets $396,000 (note 1)
Investment in associate company $806400 (note 2)

Part of Equity
Retained earnings $389,000
AFS reserve $54,000

Note 1 Investment in AFS assets
Investment in equity securities, at cost $342,000
add Valuation allowance for AFS investments $54000
Carrying amount $396,000

Note 2 Investment in associate company
Investment in 32% of Imboden Inc., at cost $720,000
less dividend received $57600
add share of net income of associate $144000
Carrying amount $806400

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