Way Aircraft Corporation acquired the following equity investments at the beginn
ID: 2589333 • Letter: W
Question
Way Aircraft Corporation acquired the following equity investments at the beginning of year 1 to be held in an available-for-sale portfolio DesTIption Number of shares Market price per share x Share acquisition price $2,391,400 Rex Group Boston Brothers Yanev Associates Lucas Company 65,000 $66 $4,290,000 108,700 94,000 40,000 $22 X S5 x $18 x $470,000 $720,000 Share prices at the end of years 1 and 2 are presented below. Rex Boston Yanev Lucas Fair Value End of year1 End of year 2 Group Brothers Associates Company $24 $19 $2 $1 $19 $23 $62 S57 Requirements Prepare the journal entry to record the acquisition of the investments Prepare the journal entry to record the end of year 1 adjusting entry for the available-for-sale portfolio. a. b. c. Assume that Way sells 37,000 Yanev shares for S 21 per share at the beginning of year 2. Prepare the journal entry required to record the sale. Way does not adjust the fair value adjustment account at this time Prepare the journal entry to record the year 2 adjusting entry d.Explanation / Answer
Journal Entries Amount ($) Date Particulars Debit Credit Beg. Year 1 Rex Group Shares A/c Dr 2,391,400 Boston Brothers Shares A/c Dr 470,000 Yanev Associates A/c Dr 720,000 Lucas Company A/c Dr 4,290,000 To Bank A/c 7,871,400 Being Invest ment made in the Rex Group,Boston Brothers,Yanev Associates,Lucas Company for total amount of $ 7,871,400/- End. of Year 1 Profit & Loss A/c Dr. 542,000 To Boston Brothers Shares A/c 282,000 To Lucas Company A/c 260,000 Being decrease in the Boston Brothers,Lucas Company share price at the year 1 is recognised as loss End. of Year 1 Rex Group Shares A/c Dr 217,400 Yanev Associates A/c Dr 40,000 To Provision for Appricition in the Share Price A/c 257,400 Being increase in the Rex Group Shares&Yanev Associates share price at the year 1 is recognised, to be reversed on 2nd year begning Beg. Year 2 Provision for Appricition in the Share Price A/c 257,400 To Rex Group Shares A/c 217,400 To Yanev Associates A/c 40,000 Being reversal of the increase in the share price recogninsed in the year 1 Beg. Year 2 Bank A/c Dr 777,000 To Yanev Associates A/c 666,000 To Profit & Loss A/c 111,000 Being sale of the 37000 Yanev Shares for $21 per share End. of Year 2 Profit & Loss A/c Dr. 745,100 To Rex Group Shares A/c 326,100 To Boston Brothers Shares A/c 94,000 To Lucas Company A/c 325,000 Being decrease in the Rex Group ,Boston Brothers,Lucas Company share price at the year 1 is recognised as loss End. of Year 2 Yanev Associates A/c Dr 15,000 To Provision for Appricition in the Share Price A/c 15,000 Being increase in the Rex Group Shares&Yanev Associates share price at the year 2 is recognised, to be reversed on 3rd year begning Workings Rex Group Boston Yanev Lucas a Number of Shares 108,700 94,000 40,000 65,000 b Acquisition Share Price 22 5 18 66 c Total Share Price 2,391,400 470,000 720,000 4,290,000 d Year 1 Ending Price 24 2 19 62 e Increase / (Decrease) Share Price 2 (3) 1 (4) f Year 1 Gain / Loss 217,400 (282,000) 40,000 (260,000) g Year 2 Ending Price 19 1 23 57 h Increase / (Decrease) Share Price * (3) (1) 5 (5) i Year 2 Gain / Loss * The difference will be computed for Rex and Yanev is (g-b ) & For Boston , Lucas is (g-d)
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