Sarasota Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2020. The purchase price was $1,097,800 for 49,900 shares. Kulikowski Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2021. Kulikowski reported net income of $769,000 for 2021. The fair value of Kulikowski’s stock was $25 per share at December 31, 2021. Assume that the security is a trading security. Prepare the journal entries for Sarasota Inc. for 2020 and 2021, assuming that Sarasota cannot exercise significant influence over Kulikowski.
Sarasota Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2020. The purchase price was $1,097,800 for 49,900 shares. Kulikowski Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2021. Kulikowski reported net income of $769,000 for 2021. The fair value of Kulikowski’s stock was $25 per share at December 31, 2021. Assume that the security is a trading security.
- Prepare the
journal entries for Sarasota Inc. for 2020 and 2021, assuming that Sarasota cannot exercise significant influence over Kulikowski.
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Date |
Account Titles and Explanation |
Debit |
Credit |
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Dec. 31, 2020 |
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June 30, 2021 |
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Dec. 31, 2021 |
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(To record dividend.) |
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(To record fair value.) |
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- At what amount is the investment in securities reported on the
balance sheet under each of these methods at December 31, 2021? What is the total net income reported in 2021 under each of these methods?
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Fair Value Method |
Equity Method |
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Investment amount (balance sheet) |
$ |
$ |
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Dividend revenue (income statement) |
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Unrealized holding gain (income statement) |
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Investment income (income statement) |
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