question archive Coronado Company has several investments in the securities of other companies
Coronado Company has several investments in the securities of other companies
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Coronado Company has several investments in the securities of other companies. The following information regarding these investments is available at December 31, 2020.
1. Coronado holds bonds issued by Dorsel Corp. The bonds have an amortized cost of $317,000 and their fair value at December 31, 2020, is $393,000. Coronado intends to hold the bonds until they mature on December 31, 2028.
2. Coronado has invested idle cash in the equity securities of several publicly traded companies. Coronado intends to sell these securities during the first quarter of 2021, when it will need the cash to acquire seasonal inventory. These equity securities have a cost basis of $810,000 and a fair value of $923,000 at December 31, 2020.
3. Coronado has an ownership stake in one of the companies that supplies Coronado with various components Coronado uses in its products. Coronado owns 6% of the common stock of the supplier, does not have any representation on the supplier's board of directors, does not exchange any personnel with the supplier, and does not consult with the supplier on any of the supplier's operating, financial, or strategic decisions. The cost basis of the investment in the supplier is $1,202,000 and the fair value of the investment at December 31, 2020, is $1,559,000. Coronado does not intend to sell the investment in the foreseeable future. The supplier reported net income of $77,000 for 2020 and paid no dividends.
4. Coronado purchased 25% of the stock of Slobbaer Co. for $906,000. Coronado has significant influence over the operating activities of Slobbaer Co. During 2020, Slobbaer Co.reported net income of $300,000 and paid a dividend of $99.000.
Prepare any December 31, 2020, journal entries needed for Coronado relating to Coronado's various investments in other companies. Assume 2020 is Coronado's first year of operations. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)
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Answer:
| No | Account Title and Explanation | Debit ($) | Credit ($) |
| 1 | No entry needed | 0 | 0 |
| 2 | Fair value adjustment (923,000-810,000) | 113,000 | |
| Unrealized Holding Gain or loss- Income | 113,000 | ||
| [To record increase in value of securities ) | |||
| 3 | Fair value adjustment (1,559,000-1,202,000) | 357,000 | |
| Unrealized Holding Gain or loss- Income | 357,000 | ||
| [To record increase in value of securities of supplier ) | |||
| 4 | Equity Investments (300,000*25%) | 75,000 | |
| Investment income | 75,000 | ||
| (To record income on equity method ) | |||
| Cash (99,000*25%) | 24,750 | ||
| Equity Investments | 24,750 | ||
| (To record dividends from equity method investee ) |
