Question

On March 31, 2021, Chow Brothers, Inc., bought 6% of KT Manufacturing’s capital stock for $51.8...

On March 31, 2021, Chow Brothers, Inc., bought 6% of KT Manufacturing’s capital stock for $51.8 million. KT’s net income for the year ended December 31, 2021, was $80.6 million. The fair value of the shares held by Chow was $36.2 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 $30.6 million. Prepare the journal entries to record the sale.

1. journal entry worksheet

(a) March 31, 2021 - Record the purchase of KT Manufacturing’s capital stock for $51.8 million.

(b) December 31, 2021 - Record the entry for KT's net income.

(c) December 31, 2021 - Record the fair value adjustment.

2. Journal entry worksheet

(a) January 2, 2022 - Record the entry to adjust the fair value

(b) January 2, 2022 - Record the sale of stock on January 20, 2022 for $30.6 million.

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