Question

Hamilton Ltd. was organized on January 2, 2017. The following investment transactions and events occurred during...

Hamilton Ltd. was organized on January 2, 2017. The following investment transactions and events occurred during the following months:

2017
Jan. 6 Hamilton paid $575,500 for 50,000 shares (20%) of Wong Inc. outstanding common shares.
Apr. 30 Wong declared and paid a cash dividend of $1.10 per share.
Dec. 31 Wong announced that its profit for 2017 was $480,000. Fair value of the shares was $11.80 per share.
2018
Oct. 15 Wong declared and paid a cash dividend of $0.70 per share.
Dec. 31 Wong announced that its profit for 2018 was $630,000. Fair value of the shares was $12.18 per share.
2019
Jan. 5 Hamilton sold all of its investment in Wong for $682,000 cash.


Assume that Hamilton has a significant influence over Wong with its 20% share.

Required:
1.
Prepare the entries to record the preceding transactions in Hamilton’s books. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)



2. Calculate the carrying value per share of Hamilton’s investment as reflected in the investment account on January 4, 2019. (Round your answer to 2 decimal places.)



3. Calculate the change in Hamilton’s equity from January 2, 2017, through January 5, 2019, resulting from its investment in Wong.

Homework Answers

Answer #1

1. Prepare the entries to record the preceding transactions in Hamilton’s books. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2017
6-Jan INVESTMENT A/C………………………….DR 575500
TO BANK A/C 575500
30-Apr BANK A/C……………………………………..DR 55000
TO DIVIDEND A/C 55000
(1.1X50000)
31-Dec NO ENTRY
SINCE IT IS AN EVENT
COMPANY HAS ANNOUNCED PROFIT
2018
15-Oct BANK A/C……………………………………..DR 35000
TO DIVIDEND A/C 35000
(0.7 X 50000)
31-Dec NO ENTRY
SINCE IT IS AN EVENT
COMPANY HAS ANNOUNCED PROFIT
2019
5-Jan BANK A/C…………………………………..DR 682000
TO INVESTMENT A/C 575500
TO PROFIT ON SALE OF INVESTMENTS A/C 106500
( SALE OF INVESTMENTS)

2. Calculate the carrying value per share of Hamilton’s investment as reflected in the investment account on January 4, 2019. (Round your answer to 2 decimal places.)

Carrying amount of Investment on 04 Jan, 2019

Carrying amount of investments will be book value of investment or market price whichever is less. In this case Book value of Investment is $ 575500 whereas market value of investment on Dec 31, 2018 is 12.18 x 50000 =$ 609000 which is higher than original cost of investment. Hence carrying amount of Investment as on 4th January, 2019 will be $ 575500

3. Calculate the change in Hamilton’s equity from January 2, 2017, through January 5, 2019, resulting from its investment in Wong.

Your answer

Carrying amount of investments will be book value of investment or market price whichever is less. In this case Book value of Investment is $ 575500 whereas market value of investment on Dec 31, 2018 is 12.18 x 50000 =$ 609000 which is higher than original cost of investment. Hence carrying amount of Investment as on 4th January, 2019 will be $ 575500

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