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question accounting analysis and principles splish company has several investments i 4281617

Question

Accounting, Analysis, and Principles

Splish Company has several investments in the securities of other companies. The following information regarding these investments is available at December 31, 2017.

Splish purchased 25% of the stock of Slobbaer Co. for $884,000. Splish has significant influence over the operating activities of Slobbaer Co. During 2017, Slobbaer Co. reported net income of $305,000 and paid a dividend of $90,000.

Prepare any December 31, 2017, journal entries needed for Splish relating to Splish's various investments in other companies. Assume 2017 is Splish’s first year of operations. (Credit account titles are automatically indented when the 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.)

No.

Account Titles and Explanation

Debit

Credit

1.

2.

(To record the increase in value of the securities.)

3.

(To record the increase in the value of the investment in the supplier.)

4.

(To record the impairment of the investment in Forter Co.)

5

(To record income on the equity method.)

(To record dividends received from equity-method investee.)

1.

 

Splish holds bonds issued by Dorsel Corp. The bonds have an amortized cost of $326,000 and their fair value at December 31, 2017, is $400,000. Splish intends to hold the bonds until they mature on December 31, 2025.

2.

 

Splish has invested idle cash in the equity securities of several publicly traded companies. Splish intends to sell these securities during the first quarter of 2018, when it will need the cash to acquire seasonal inventory. These equity securities have a cost basis of $798,000 and a fair value of $920,000 at December 31, 2017.

3.

 

Splish has a significant ownership stake in one of the companies that supplies Splish with various components Splish uses in its products. Splish owns 6% of the common stock of the supplier, does not have any representation on the supplier's board of directors, does not exchange any personnel with the supplier, and does not consult with the supplier on any of the supplier's operating, financial, or strategic decisions. The cost basis of the investment in the supplier is $1,196,000 and the fair value of the investment at December 31, 2017, is $1,551,000. Splish does not intend to sell the investment in the foreseeable future. The supplier reported net income of $85,000 for 2017 and paid no dividends.

4.

 

Splish owns some common stock of Forter Corp. The cost basis of the investment in Forter is $209,000 and the fair value at December 31, 2017, is $51,000. Splish believes the decline in the value of its investment in Forter is permanent and therefore impaired, but Splish does not intend to sell its investment in Forter in the foreseeable future.

5.

 

Splish purchased 25% of the stock of Slobbaer Co. for $884,000. Splish has significant influence over the operating activities of Slobbaer Co. During 2017, Slobbaer Co. reported net income of $305,000 and paid a dividend of $90,000.

Prepare any December 31, 2017, journal entries needed for Splish relating to Splish's various investments in other companies. Assume 2017 is Splish’s first year of operations. (Credit account titles are automatically indented when the 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.)

No.

Account Titles and Explanation

Debit

Credit

1.

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2.

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(To record the increase in value of the securities.)

 

 

3.

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(To record the increase in the value of the investment in the supplier.)

 

 

4.

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(To record the impairment of the investment in Forter Co.)

 

 

5

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(To record income on the equity method.)

 

 

 

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(To record dividends received from equity-method investee.)

 

 

 

 

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