Forte Inc. produces and sells theater set designs and costumes. The company bega
ID: 2342483 • Letter: F
Question
Forte Inc. produces and sells theater set designs and costumes. The company began operations on January 1, Year 1. 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 Year 1 Jan. 22 Purchased 22,000 shares of Sankal Inc. as an available-for-sale security at $18 per share, including the brokerage commission Received a cash dividend of $0.22 per share on Sankal Inc. stock. A cash dividend of $0.25 per share was received on the Sankal stock. Sold 3,000 shares of Sankal Inc. stock at $16 per share less a brokerage commission of $75 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. Mar. 8 8 Sep. Oct. Dec. 17 31 Record these transactions on page 11 Year 2 Purchased an influential interest in Imboden Inc. for $720,000 by purchasing 96,000 shares directly from the estate of the founder of Imboden Inc. There are 300,000 shares of Imboden Inc. stock outstanding Received a cash dividend of $0.30 per share on Sankal Inc. stock. Received a cash dividend of $0.25 per share plus an extra dividend of $0.05 per share on Sankal Inc. stock. Received $57,600 of cash dividends on Imboden Inc. stock. Imboden Inc. reported net income of $450,000 in Year 2. Forte Inc. uses the equity method of accounting for its investment in Imboden Inc. Sankal Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $22 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the decrease in fair value from $25 to $22 per share Jan. 10 Mar. Sep. 10 12 Dec. 31 Dec. 31Explanation / Answer
Date General Journal Debit $ Credit $ Year 1 Jan 22 Investments—Sankal Inc.* 396,000 Cash 396,000 *22,000 shares × $18 per share Mar 8 Cash* 4,840 Dividend Revenue 4,840 *22,000 shares × $0.22 per share Sep 8 Cash* 5,500 Dividend Revenue 5,500 *22,000 shares × $0.25 per share Oct 17 Cash* 47,925 Loss on Sale of Investments 6,075 Investments—Sankal Inc.** 54,000 *(3,000 shares × $16.00) – $75 **3,000 shares × $18 per share Dec 31 Valuation Allowance for Available-for- Sale Investments 133,000 Unrealized Gain (Loss) on Available-for- Sale Investments 133,000 19,000 shares × ($25.00 – $18.00). Year 2 Jan 10 Investment in Imboden Inc. Stock 720,000 Cash 720,000 Mar 10 Cash* 5,700 Dividend Revenue 5,700 *(22,000 shares – 3,000 shares) × $0.30 per share Sep 12 Cash* 5,700 Dividend Revenue 5,700 *19,000 shares × ($0.25 + $0.05) Dec 31 Cash 57,600 Investment in Imboden Inc. Stock 57,600 Dec 31 Investment in Imboden Inc. Stock 144,000 Income of Imboden Inc. 144,000 To record 32% of Imboden Inc. income $450,000 × (96,000 shares ÷ 300,000 shares). Unrealized Gain (Loss) on Available-for- Sale Investments 57,000 Valuation Allowance for Available-for- Sale Investments* 57,000 *($22.00 – $25.00) × 19,000 shares FORTE INC. Balance Sheet (selected items) December 31, Year 2 Current assets: Available-for-sale investments (at cost)1 $342,000 Plus valuation allowance for available-for- sale investments 76,000 Available-for-sale investments (at fair value)2 $418,000 Investments: Investment in Imboden Inc. stock3 $806,400 Stockholders’ equity: Retained earnings $389,000 Unrealized gain (loss) on available-for-sale investments 76,000 1 19,000 shares × $18 per share 2 19,000 shares × $22 per share 3 $720,000 + $144,000 – $57,600