Question

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

Answer 1

Value of Investment before selling of shares: (Equity Method)

Beginnig Balance                   $3,050,000
Add: Share of Income 31/15      $400,000
Add: Share of Income 31/16      $500,000
Less: Dividend Income 6/15      $150,000
Less: Dividend Income 5/16      $240,000
Ending Balance                      $3,560,000

Shares sold = 108000
Carrying amount of balance 108000 shares = 3560000/ 2= $1,780,000
Now there is no significance influence hence fair value method is applicable for investment accounting.
Here dividend received by swiftly in 2017 is recorded as income and debited to cash. No impact on ivestment.

b) Adjusting Entry:

Date	Account Titles	Debit	Credit
12/31/17	Securities Fair value adjustment	$40000
	Unearned Holding Gain		$40000

Gain = $1820000 - $1780000 = $40000
Here Account titles can be difference, choose from list available to you.