1. OBT Corporation has owned stock of CCC Corp. since 2014. At December 31, 2017
ID: 2569114 • Letter: 1
Question
1. OBT Corporation has owned stock of CCC Corp. since 2014.
At December 31, 2017, OBT’s balances related to this investment were:
Equity Investments $185,000 debit balance
Fair Value Adjustment on Investment Securities classified as Available for Sale (AfS) $34,000 debit balance
Accumulated Unrealized Holding Gain or Loss (recorded in Retained Earnings) $34,000 credit balance
On January 3, 2018 OBT Corporation purchased additional share of the stock of CCC Corp for $475,000. OBT now exercises significant influence of CCC.
If the equity method had been used from 2014 through 2017, OBT’s share of CCC Corp.’s income would have been $33,000 more than the dividends received.
Using the attached T-account template, indicate the balances in the accounts listed above, and prepare the entries to recognize the purchase of shares on 1/3/18, and the entry needed to record the change to the equity method.
Explanation / Answer
OBT Equity Investments 31 st Dec 2017 To bal bd $185,000 By unrealized holding gain & loss $34,000 To Fair value adjustments $34,000 By bal b/d $185,000 $219,000 $219,000 OBT Equity Investments As on 31 jan 2018 To cash $475,000 By unrealized holding gain & loss $33,000 By bal b/d $442,000 $475,000 $475,000 Unrealized holding gain (shareholder equity $34,000 Fair value adjustments (shareholder equity) $34,000 (To remove the investors percentage of increase in fair value from stakeholders equity and the available for sale portfolio valuation account) Investment in CC corporation stock $ 4,75,00 Retained Earning $33,000 Equity in Investee a/c $442,000 (To adjust 2017 &2018 records so that investment is accounted for using the equity method in consistant manner)
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