Question

On January 1, 2020, Starchucks Corporation purchased 20,000 shares of Karfee, Inc. common stock for $30/share,...

On January 1, 2020, Starchucks Corporation purchased 20,000 shares of Karfee, Inc. common stock for $30/share, including brokerage commissions.   Karfee had 200,000 shares of common stock outstanding at the time Starchucks purchased its stock from another investor. Karfee common stock was trading at $33/share on December 31, 2020, and $26/share on December 31, 2021. Starchucks classifies its investment in Karfee as an available for sale investment.   December 31st is Starchucks’ fiscal year-end.

Required (submit as a text entry and MUST show the detail of numbers calculated):

  1. Prepare the journal entry for Starchucks to record the purchase on 1/1/20.
  2. Prepare the journal entry for Starchucks to “mark to market” its investment on 12/31/20.
  3. Prepare the journal entry for Starchucks to “mark to market” its investment on 12/31/21.
  4. Prepare Starchucks' balance sheet presentation of its investment in Karfee on 12/31/21.
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Answer #1

ANSWER:

JOURNAL
SI NO DATE DESCRIPTION POST Ref. DEBIT CREDIT
a Jan 1, 2020 INVESTMENT IN KARFEE STOCKS 600,000
CASH 600,000
b Dec-31-20 INVESTMENT IN KARFEE STOCKS 60,000
UNREALIZED GAIN ON INVESTMENT 60,000
c 31-Dec-20 UNREALIZED LOSS ON INVESTMENT 140000
INVESTMENT IN KARFEE STOCKS 140000

CALCULATIONS:

20000*30
20000*(33-30)
20000*(33-26)

In balance sheet it will be presented as short term investment (Current Assets) with value 20000*26 on 31 December 2021.

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