Swifty Corp. was a 30% owner of Nash Company, holding 216,000 shares of Nash’s common stock on December 31, 2016. The investment account had the following entries.
Investment in Nash
1/1/15 Cost 3,050,000 12/6/15 Dividend Received 150,000
12/31/15 Share of income 400,000 12/5/16 240,000
12/31/16 Share of income 500,000
On January 2, 2017, Swifty sold 108,000 shares of Nash for $3,360,000, thereby losing its significant influence. During the year 2017, Nash experienced the following results of operations and paid the following dividends to Swifty.
Nash Income (Loss) Dividends Paid to Swifty
2017 310,000 47,000
At December 31, 2017, the fair value of Nash shares held by Swifty is $1,820,000. This is the first reporting date since the January 2 sale.
(b) Compute the carrying amount of the investment in Nash as of December 31, 2017 (prior to any fair value adjustment).
Carry Amount $________________
(c) Prepare the adjusting entry on December 31, 2017, applying the fair value method to Swifty’s long-term investment in Nash Company securities. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Date Account Titles and Explanation Debit Credit
12/31/17 ________________________ _______ _______
________________________ ________ _______
A.Calculation of carrying amount of investment in Nash as on Dec 31,2017.:-
Cost of investment as on 1/1/2015 = $3,050,000
This cost is for 216000 shares.
Total value of investment as on 31/12/2016 = $3,050,000 + $150000 + $400000 +$240000 + $500000
= $4,340,000
Value of 216000 shares as on 31/12/2016 = $4,340,000
On Jan 2,2017 sold 108000 shares for $3,360,000.
Cost of investment sold = $3,360,000 * 108000 / 216000 = $ 1,525,000
Profit on sale of investment = $3,360,000 - $ 1,525,000 = $1835000
Carrying amount of investment held by Swift in Nash = $3,050,000 - $1,525,000 = $1,525,000
Get Answers For Free
Most questions answered within 1 hours.