Question

Exercise 12-16 (Static) Equity investments; fair value through net income [LO12-5]

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On January 2, 2021, Sanborn Tobacco Inc. bought 5% of Jackson Industry’s capital stock for $90 million. Jackson Industry’s net income for the year ended December 31, 2021, was $120 million. The fair value of the shares held by Sanborn was $98 million at December 31, 2021. During 2021, Jackson declared a dividend of $60 million.

Exercise 12-16 (Static) Part 2

2. Assume that Sanborn sold the stock on January 2, 2022 for $110 million. Prepare the journal entries Sanborn would use to record the sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Answer 1

				Millions $
1.)	S.No.	Account Titles	Debit	Credit
	1	Investment in Jackson Industry	90
		Cash		90
		( to record Investment )
	2	Cash ( 60 x 5% )	3
		Dividend Revenue		3
		( to record dividend revenue )
	3	Fair Value Adjustment	8
		Unrealized holding gain -NI		8
		(98 - 90 )
		( to record fair value adjustment )
2.)				Millions $
	S.No.	Account Titles	Debit	Credit
	1	Fair Value Adjustment	12
		Unrealized holding gain -NI		12
		( 110 - 98 )
		( to record fair value adjustment )
	2	Cash	110
		Investment in Jackson Industry		90
		Fair Value Adjustment		20
		( to record sale )