Question

On March 31, 2021, Chow Brothers, Inc., bought 10% of KT Manufacturing’s capital stock for $50...

On March 31, 2021, Chow Brothers, Inc., bought 10% of KT Manufacturing’s capital stock for $50 million. KT’s net income for the year ended December 31, 2021, was $80 million. The fair value of the shares held by Chow was $35 million at December 31, 2021. KT did not declare or pay a dividend during 2021.

Required:
1. Prepare all appropriate journal entries related to the investment during 2021.
2. Assume that Chow sold the stock on January 20, 2022, for $30 million. Prepare the journal entries to record the sale.

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Answer #1
Journal entries (FIGURES IN MILLION)
Date particulars debit credit
31-03-2021 investment -capital stock 50
cash 50
31-Dec unrealized holding gain/LOSS(50-35) 15
fair value adjustment 15
2)
20-Jan unrealized holding gain/LOSS (50-30-15) 5
fair value adjustment 5
20-Jan cash 30
unrealized holding gain/LOSS 20
investment -Capital stock 50

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