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Exercise 12-16 (Static) Equity investments; fair value through net income [LO12-5] [The following information applies to...

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

[The following information applies to the questions displayed below.]

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).)

Homework Answers

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 )
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