Pina Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc
ID: 2524144 • Letter: P
Question
Pina Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2017. The purchase price was $1,031,800 for 46,900 shares. Kulikowski Inc. declared and paid an $0.80 per share cash dividend on June 30 and on December 31, 2018. Kulikowski reported net income of $714,000 for 2018. The fair value of Kulikowski’s stock was $25 per share at December 31, 2018. Assume that the security is a trading security.
Prepare the journal entries for Pina Inc. for 2017 and 2018, assuming that Pina cannot exercise significant influence over Kulikowski. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Date
Account Titles and Explanation
Debit
Credit
(To record dividend.)
(To record fair value.)
SHOW LIST OF ACCOUNTS
LINK TO TEXT
LINK TO TEXT
Prepare the journal entries for Pina Inc. for 2017 and 2018, assuming that Pina can exercise significant influence over Kulikowski. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Date
Account Titles and Explanation
Debit
Credit
(To record dividend.)
(To record revenue.)
SHOW LIST OF ACCOUNTS
LINK TO TEXT
LINK TO TEXT
At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2018? What is the total net income reported in 2018 under each of these methods?
Fair Value Method
Equity Method
Investment amount (balance sheet)
$
$
Dividend revenue (income statement)
Unrealized holding gain (income statement)
Investment income (income statement)
Explanation / Answer
Answer 1. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 31-Dec-17 Investment in Theresa Kulikowski 1,031,800.00 Cash 1,031,800.00 (To record the purchase of Common Stock) 30-Jun-18 Cash (46,900 Shares X $0.80) 37,520.00 Dividend Revenue 37,520.00 (To record the dividend received) 31-Dec-18 Cash (46,900 Shares X $0.80) 37,520.00 Dividend Revenue 37,520.00 (To record the dividend received) 31-Dec-18 Fair Value Adjustment 140,700.00 Unrealized Gain on Trading Investments 140,700.00 (To record the unrealized gain) Unrealized Gain = $1,172,500 (Fair Value) - $1,031,800 (Cost) Unrealized Gain = $140,700 Answer 2. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 31-Dec-17 Investment in Theresa Kulikowski 1,031,800.00 Cash 1,031,800.00 (To record the purchase of Common Stock) 30-Jun-18 Cash (46,900 Shares X $0.80) 37,520.00 Investment in Theresa Kulikowski 37,520.00 (To record the dividend received) 31-Dec-18 Cash (46,900 Shares X $0.80) 37,520.00 Investment in Theresa Kulikowski 37,520.00 (To record the dividend received) 31-Dec-18 Investment in Theresa Kulikowski 142,800.00 Revenue from Investment 142,800.00 (To record the share of profit) Share of Proit = $714,000 X 20% = $142,800 Answer 3. Fair Value Method Equity Method Investment in Theresa Kulikowski (Balance sheet) 1,172,500.00 1,099,560.00 Dividend revenue (Income Statement) 75,040.00 Revenue From Investment (Income Statement) 142,800.00