On January 1st 2016 the Snoke Company purchased 100 of the 1000 shares of The Fi
ID: 2545553 • Letter: O
Question
On January 1st 2016 the Snoke Company purchased 100 of the 1000 shares of The First Order Company stock for $6000 At this time Snoke has no influence over The First Order.
On July 1st The First Order paid a $1 per share dividend
On December 31st The First order reported income for 2016 of $5000 and its stock was selling for $63 per share
On January 2nd 2017 the Snoke Company purchased another 100 shares of The First Order stock for $6500 With this second purchase, Snoke now has significant influence over The First Order. Any excess of purchase price over book value of assets is attributable to goodwill.
On July 1st The First Order paid a $1 per share dividend
On December 31st The First Order reported income for 2017 of $9000 and its stock was selling for $61 per share
On July 1st 2018, The First Order announced that they were not paying any dividends this year
On December 31st The First Order reported a loss for 2018 of $4000 and its stock was selling for $58 per share
On January 3rd 2019 the Snoke Company sold 1/2 (100 shares) of its investment in The First Order at $59 per share. With this sale Snoke no longer has any influence over The First Order.
On July 1st The First Order paid a $2 per share dividend
On December 31st The First Order reported income of $1000 and its stock was selling for $57 per share
On January 5th 2020 the Snoke Company sold its remaining stock in The First Order at $58 per share.
REQUIRED:
A) PREPARE ALL THE NECESSARY JOURNAL ENTRIES FOR SNOKE IN 2016 THROUGH 2020
B) FOR EACH YEAR DETERMINE
1) THE BOOK VALUE OF THE INVESTMENT IN THE FIRST ORDER
2) THE BALANCE IN THE UNREALIZED HOLDING GAIN OR LOSS ACCOUNT (IS IT AN UNREALIZED GAIN OR LOSS)
3) THE INCOME STATEMENT IMPACT OF THE INVESTMENT
2016 2017 2018 2019
Investment in First Order
Unrealized holding gain/loss
Impact on income
Explanation / Answer
1)January 1-2016 Investment A/C – Dr 6000
To Cash A/C - 6000
(being 10% investments purchased in Snoke company)
2)July 1st .2016 Cash A/C – Dr 100
To Dividend A/C – 100
(being dividend received from investments in snoke company) Later on Credited to profit and loss A/C
3)January 2nd 2017- Further 100stocks are purchased due to which the total holding increases to 20% which gives rise to significant influence. There would be an upward valuation of initial investment to 63$ per stock.
a) InvestmentsA/C – Dr 300
To profit and loss A/C 300
(being 100stocks initially purchased upward valued to $6300 from $6000)
b) Investments A/C –Dr 6500
To cash A/c- 6500
(being further investments purchased in snoke company)
4)July 1st 2017 Cash A/C – Dr 200
To dividends A/c -200
(being dividend received from investments in snoke company) Later on Credited to profit and loss A/C
5) Dec31st 2017 Investments would be recorded at 61$ = 200*58= 12200
Currently investments are valued at 6300+6500= 12800
Downward valuation of (12800-12200)= 600
Profit and loss A/C – Dr 600
To Investments A/C – 600
(being investments downward valued)
6) Dec31st 2018 Investments would be recorded at 58$ = 200*58= 11600
Currently investments are valued at 12200
Downward valuation of (12200-11600)= 600
Profit and loss A/C – Dr 600
To Investments A/C – 600
(being investments downward valued)
7) January 3rd 2019 Cash A/C –Dr 59*100=5900
To Investments A/C 11600/2= 5800
To Profit and loss A/c – (balancing fig)= 100
(being investments sold and profit recorded)
8) July 1st 2019 Cash A/c – Dr 2*100=200
To dividend A/C – 200
( being dividend received on 100shares held)
Date Particulars Amount Gain/(loss)through p/L Jan1,2016 Shares purchased 100 6000 31stdec2016 Fair value -63$ 6300 300 Total 100 6300 Jan-17 Shares purchased 100 6500 - Dec31st2017 Fair value-61 200 12200 -600 Total 200 12200 Dec31st2018 Fair value@58$ 200 11600 -600 Total 200 11600 2019 Fair valued @58 100 5800