question archive Samson Products, Inc
Samson Products, Inc
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Samson Products, Inc., is a wholesaler of men’s hair products. The company began operations on January 1, 2012. The following transactions relate to securities acquired by Samson Products, Inc., which has a fiscal year ending on December 31:
2012
Jan. 3. Purchased 5,000 shares of Merlin Inc. as an available-for-sale investment at $22 per share, including the brokerage commission.
July. 8. Merlin Inc. stock was split two for one. The regular cash dividend of $0.40 per share was received on the stock after the stock split.
Oct. 19. Sold 1,200 shares of Merlin Inc stock at $13 per share, less a brokerage commission of $50.
Dec. 12. Received the regular cash dividend of $0.40 per share.
31. Merlin Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $9.50 per share, Use the valuation allowance for available-for-sale investments account in making the adjustment.
2013
Jan. 5. Purchased an influential interest in Juarez Co. for $540,000 by purchasing
60,000 shares directly from the estate of the founder of Juarez. There are 150,000 shares of Juarez Co. stock outstanding.
July 9. Received the regular cash divided of $0.50 per share on Merlin Inc. stock.
Dec. 8. Received the regular cash dividend of $0.50 per share plus an extra dividend of $0.05 per share on Merlin Inc. stock.
Dec. 31. Received $21,000 of c-ash dividends oil Juarez Co. stock. Juarez Co. reported net income of’ $96,000 in 2013. Samson Products uses the equity method of accounting for its investments in Juarez Co.
31. Merlin Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $10 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the Increase in fair value from $9.50 to $10 per share.
Instructions
1. Journalize the entries to record the preceding transactions.
2. Prepare the investment-related asset and stockholders equity balance sheet disclosures for Samson Products, Inc., on December 31, 2013, assuming the Retained Earnings balance on December 31, 2013, is $395,000.
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1.
2012
Jan. 3 Investments x Merlin Inc. ................................ 110,000*
Cash........................................................................... 110,000
*5,000 shares × $22 per share
July 8 Memo, Merlin Inc. stock split 2:1; 10,000 shares outstanding at a cost of
$11 per share, or one-half of $22 per share.
8 Cash...................................................................... 4,000*
Dividend Revenue..................................................... 4,000
*10,000 shares × $0.40 per share
Oct. 19 Cash.................................................................... 15,550*
Gain on Sale of Investments...................................... 2,350
Investments x Merlin Inc........................................... 13,200**
*(1,200 shares × $13 per share) – $50
**1,200 shares × $11 per share (see July 8, 2012,
memo entry)
Dec. 12 Cash...................................................................... 3,520*
Dividend Revenue..................................................... 3,520
*(10,000 shares – 1,200 shares) × $0.40
31 Unrealized Gain (Loss) on Available-for-Sale
Investments........................................................... 13,200
Valuation Allowance for Available-for-
Sale Investments........................................................ 13,200
To record decrease in fair value of available-
for-sale investments, 8,800 shares × ($9.50 – $11).
2013
Jan. 5 Investment in Juarez Co. Stock.......................... 540,000
Cash........................................................................... 540,000
July 9 Cash...................................................................... 4,400*
Dividend Revenue..................................................... 4,400
*8,800 shares × $0.50 per share
2013
Dec. 8 Cash...................................................................... 4,840*
Dividend Revenue..................................................... 4,840
*8,800 shares × ($0.50 + $0.05)
31 Cash...................................................................... 21,000
Investment in Juarez Co. Stock................................. 21,000
31 Investment in Juarez Co. Stock............................ 38,400
Income of Juarez Co.................................................. 38,400
To record 40% of Juarez Co. income
$96,000 × (60,000 shares/150,000 shares).
31 Valuation Allowance on Available-for-Sale
Investments........................................................... 4,400*
Unrealized Gain (Loss) on Available-
for-Sale Investments.................................................. 4,400
To record increase in fair value of
available-for-sale investments.
*8,800 × ($10 – $9.50)
2.
SAMSON PRODUCTS, INC.
Balance Sheet (selected items)
December 31, 2013
Current assets:
Available-for-sale investments (at cost)..................... $96,8001
Less valuation allowance for available-for-sale
investments............................................................... 8,800
Available-for-sale investments (at fair value)........................... $88,0002
Noncurrent assets:
Investment in Juarez Co. stock................................................. $557,4003
Stockholders’ equity:
Retained earnings..................................................................... $395,000
Unrealized gain (loss) on available-for-sale
investments......................................................................... (8,800)
18,800 shares × $11 per share
28,800 shares × $10 per share
3$540,000 + $38,400 – $21,000
