Question

On January 1, 2011 The ACME Company made two investments:

A) Purchased 200 of the 2,000,000 shares of HAL for $20,000

B) Purchased 400 of the 1,000 shares of GZK for $40,000. At that this time the book value of GZK was $100,000.

In 2011 HAL paid dividends of $4,000,000 and reported income of $12,000,000.

On Decemer 31, HAL's stock was selling for $104 per share.

In 2011, GZK paid dividends of $800 and reported income of $2,800.

On December 31, GZK stock was selling for $98 per share.

On 3/1/12 ACME sold its' investment in HAL at $102 per share.

On 3/4/12 ACME sold its' investment in GZK at $101 per share.

REQUIRED: Prepare the journal entries needed by ACME in 2011 and 2012 if they have no influence over HAL and they have significant influence of GZK.

Note: ACME is a manufacturer so they would use available for sale rather than trading securities.

Answer 1

Solution:

Journal Entries - Acme Company
Date	Particulars	Debit	Credit
1-Jan-11	Investment in HAL Dr	$20,000.00
	Investment in GZK Dr	$40,000.00
	To Cash		$60,000.00
	(Being investment in shares of HAL and GZK)
2011	Cash Dr (200*$2)	$400.00
	To Dividend Revenue		$400.00
	(Being dividend received from HAL)
2011	Investment in GZK Dr	$1,120.00
	To Investment income ($2,800*40%)		$1,120.00
	(Being share of income in associate enterprise recorded)
2011	Cash Dr ($800*40%)	$320.00
	To Investment in GZK		$320.00
	(Being dividend received from GZK)
31-Dec-11	Fair value adjustment Dr (200*$4)	$800.00
	To Unrealised holding gain or loss - OCI		$800.00
	(Being fair value adjustment on share of HAL company)
1-Mar-12	Cash Dr (200*$102)	$20,400.00
	Unrealized holding gain or loss - OCI Dr	$800.00
	To Investment in HAL		$20,000.00
	To Fair value adjustment		$800.00
	To Gain on sale of available for sale investment		$400.00
	(Being share in HAL sold and profit realized)
4-Mar-12	Cash Dr (400*$101)	$40,400.00
	Loss on sale of investment Dr	$400.00
	To Investment in GZK		$40,800.00
	(Being shares of GZK sold and loss recorded)