Question 3 (18 points) Jackson Company engaged in the following investment trans

Question

Question 3 (18 points) Jackson Company engaged in the following investment transactions during the current year Purchased 500 shares of Medical Company common for $20 per Feb. 17 share plus a brokerage commission of $100. These are trading securities. Bought 30,000 of the 100,000 outstanding shares of Olde Company for $300,000. Goodwill of $80,000 was included in the price. Received a $1.20 per share dividend on Medical Company stock. Olde Company reported second-quarter profits of $20.000. Purchased 2,000 shares of Alpha Company for $15 per share plus a brokerage fee of $400. These April 1 June 25 June 30 Oct. 1 shares are classified as securities available for sale. Dec. 31 Medical Co. shares are selling for $25 and Alpha stock is selling for $12 Required: Prepare the appropriate journal entries to record the transactions for the year including year-end adjustments. Show calculations

Explanation / Answer

Date

Accounts Title & Explanation

Debit

Credit

Feb. 17

Investment in Medical (500 * $20) + $100

$10100

     Cash

$10100

(For recording purchase of medical company shares)

April 1

Investment in Olde

$300000

     Cash

$300000

(For recording purchase of olde company shares)

June 25

Cash (500 * $1.20)

$600

     Investment revenue

$600

(For recording receipts of dividend)

June 30

Investment in Olde ($20000 * 0.30)

$6000

     Investment revenue

$6000

(For recording 30% share in net income)

Oct. 1

Investment in Alpha (2000 * $15) + $400

$30400

     Cash

$30400

(For recording purchase of olde company shares)

Dec. 31

Fair value adjustment-Medical

$2400

     Net unrealized holding gain or loss

$2400

(For recording fair value of shares of medical company)

Dec. 31

Net unrealized holding gain or loss

$6400

      Fair value adjustment-Alpha

$6400

(For recording fair value of shares of Alpha company)

Working Note;

1. Fair value adjustment amount for medical company will be calculated as follow;

(500 * $25) – $10100 = $2400 unrealized holding gain

2. Fair value adjustment amount for alpha company will be calculated as follow;

(2000 * $12) – $30400 = $6400 unrealized holding loss

3. Share in net income of Olde company will be calculated as follow;

30000 / 100000 = 30% share

($20000 * 30 / 100) = $6000

Date

Accounts Title & Explanation

Debit

Credit

Feb. 17

Investment in Medical (500 * $20) + $100

$10100

     Cash

$10100

(For recording purchase of medical company shares)

April 1

Investment in Olde

$300000

     Cash

$300000

(For recording purchase of olde company shares)

June 25

Cash (500 * $1.20)

$600

     Investment revenue

$600

(For recording receipts of dividend)

June 30

Investment in Olde ($20000 * 0.30)

$6000

     Investment revenue

$6000

(For recording 30% share in net income)

Oct. 1

Investment in Alpha (2000 * $15) + $400

$30400

     Cash

$30400

(For recording purchase of olde company shares)

Dec. 31

Fair value adjustment-Medical

$2400

     Net unrealized holding gain or loss

$2400

(For recording fair value of shares of medical company)

Dec. 31

Net unrealized holding gain or loss

$6400

      Fair value adjustment-Alpha

$6400

(For recording fair value of shares of Alpha company)

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