Requirement 1
To prepare:
Requirement 1

Answer to Problem 4APSA
Solution:
Date | Accounts Titles and Descriptions | Debit | Credit |
2015 | |||
Jan-05 | Equity Investment − Kildarie | 1,560,000 | |
Cash | 1,560,000 | ||
(To purchase common shares of Kildarie's) | |||
Oct-23 | Cash | 192,000 | |
Equity Investment − Kildarie | 192,000 | ||
(To record the receipt of dividends from Kildarie.) | |||
Dec-31 | Equity Investment − Kildarie | 232,800 | |
Equity Investment Income | 232,800 | ||
(To record Kildarie's reported income) | |||
2016 | |||
Oct-15 | Cash | 156,000 | |
Equity Investment Income | 156,000 | ||
(To record the receipt of dividends from Kildarie.) | |||
Dec-31 | Equity Investment − Kildarie | 295,200 | |
Equity Investment Income | 295,200 | ||
(To record Kildarie's reported income) | |||
2018 | |||
Jan-02 | Cash | 1,894,000 | |
Equity Investment − Kildarie | 1,740,000 | ||
Gain on Sale of Investment | 154,000 | ||
(To record sale of Equity Investment − Kildarie) |
Explanation of Solution
The above journal entries can be explained as under −
For the year 2015 −
Jan. 5 − The common shares of Kildarie have been purchased for $ 1,560,000. Thus, Equity Investment − Kildarie for shares have been debited and cash has been credited for $ 1,560,000
Oct. 23 − Kildarie paid dividends of $ 3.20 per share. The dividends on Kildarie for Montero Co. will be calculated as under −
Since, dividends are received, they will be credited or subtracted from the Equity Investment − Kildarie account.
Dec. 31 − the net income of Kildarie is $ 1,164,000 for the year. The net income due to Selk will be added to Kildarie investment account.
The net income of Kildarie for Selk. will be calculated as under −
Thus, the net income is added to Equity Investment − Kildarie account.
For the year 2016 −
Oct. 15 − Kildarie paid dividends of $ 2.60 per share. The dividends on Kildarie for Selk will be calculated as under −
Since, dividends are received, they will be credited or subtracted from the Equity Investment − Kildarie account.
Dec. 31 − the net income of Kildarie is $ 1,476,000 for the year. The net income due to Selk will be added to Kildarie investment account.
The net income of Kildarie for Selk. will be calculated as under −
Thus, the net income is added to Equity Investment − Kildarie account.
For the year 2017 −
Jan. 02 − the sale of investment for $ 1,894,000
Given,
- The shares are sold for = $ 1,894,000
- Carrying value of shares −
- Purchase price of shares = $ 1,560,000
- Net income for year 2015 = $ 232,800
- Net income for year 2016 = $ 295,200
- Dividend for 2015 = $ 192,000
- Dividend for 2016 = $ 156,000
Now, gain will be calculated as −
The cash will be debited with the sale amount of $ 1,894,000. The Equity Investment − Kildarie will be credited with $ 1,740,000 and the gain on sale of investment will be credited with $ 154,000.
Thus, all the journal entries have been prepared.
To compute:
Carrying (Book) value per share of Selk’s Investment in Kildarie common stock

Answer to Problem 4APSA
Solution:
The carrying (Book) value per share of Selk’s Investment in Kildarie common stock = $ 29 per share.
Explanation of Solution
The above answer can be explained as under −
Given,
- Carrying value of investment = $ 1,740,000 (explained in requirement 1)
- Number of shares purchased = 60,000 shares
Thus, the carrying (Book) value per share has been calculated.
To compute:
Net Increase or decrease in Selk’s equity from January 5, 2017 through January 2, 2017

Answer to Problem 4APSA
Solution:
The net Increase in Selk’s equity from January 5, 2017 through January 2, 2017 = $ 682,000
Explanation of Solution
The above answer can be explained as under −
Given,
- Earnings from Kildarie − 2015 = $ 232,800
- Earnings from Kildarie − 2016 = $ 295,200
- Gain on sale of Investment = $ 154,000
Thus, the net Increase in Selk’s equity from January 5, 2017 through January 2, 2017 has been determined.
Part 2 − Investments as Available for Sale Investments
To prepare:
Journal entries to record the transactions and events given for Selk

Answer to Problem 4APSA
Solution:
Date | Accounts Titles and Descriptions | Debit | Credit |
2015 | |||
Jan-05 | Long term Investment - Kildarie (AFS) | 1,560,000 | |
Cash | 1,560,000 | ||
(To record purchase of shares of Kildarie) | |||
Oct-23 | Cash | 192,000 | |
Dividend revenue | 192,000 | ||
(To record receipt of dividend revenue) | |||
Dec-31 | Market Adjustment - AFS | 240,000 | |
Unrealized Gain - AFS equity | 240,000 | ||
(To record unrealized loss on the AFS securities) | |||
2016 | |||
Oct-15 | Cash | 156,000 | |
Dividend revenue | 156,000 | ||
(To record receipt of dividend revenue) | |||
Dec-31 | Market Adjustment - AFS | 120,000 | |
Unrealized Gain - AFS equity | 120,000 | ||
(To record unrealized loss on the AFS securities) | |||
2017 | |||
Jan-02 | Cash | 1,894,000 | |
Long term Investment - Kildarie (AFS) | 1,560,000 | ||
Gain on Sale of Investment | 334,000 | ||
(To record sale of AFS investment) | |||
Jan-02 | Unrealized Gain - AFS equity | 360,000 | |
Market Adjustment − AFS | 360,000 | ||
(To record unrealized gain transferred to adjustment account) |
Explanation of Solution
The above journal entries can be explained as under −
For the year 2015 −
Jan. 05 − The common shares of Kildarie have been purchased for $ 1,560,000. Thus, Long term Investment - Kildarie (AFS) has been debited and cash has been credited for $ 1,560,000
Oct. 23 − The dividend is received on Kildarie’s Stock for $ 3.20 per share. The dividend is calculated as under −
Thus, the cash received will be debited and the dividend revenue will be credited.
Dec. 31 − The fair value per share of Kildarie is $ 32. The total fair value will be calculated as −
- Cost price of shares = $ 1,560,000 The gain on fair value of shares will be calculated and adjusted as −
The unrealized gain will be credited and Market Adjustment − AFS will be debited with $ 240,000.
For the year 2016 −
Oct. 15 − The dividend is received on Kildarie’s Stock for $ 2.60 per share. The dividend is calculated as under −
Thus, the cash received will be debited and the dividend revenue will be credited.
Dec. 31 − The fair value per share of Kildarie is $ 32. The total fair value will be calculated as −
- Cost price of shares = $ 1,800,000 The gain on fair value of shares will be calculated and adjusted as −
The unrealized gain will be credited and Market Adjustment − AFS will be debited with $ 120,000.
For the year 2017 −
Jan. 02 − The shares are sold for $ 1,894,000. The cost price of the shares was $ 1,560,000.
Now, gain will be calculated as −
The cash will be debited with the sale amount of $ 1,894,000. The Long term Investment - Kildarie (AFS) will be credited with $ 1,560,000 and the gain on sale of investment will be credited with $ 334,000.
In the next entry, the unrealized gain is debited with $ 360,000 (i.e. $ 240,000 + $ 120,000) and the Market Adjustment − AFS is credited with $ 360,000.
Thus, all the journal entries have been prepared.
To compute:
Carrying (Book) value per share of Selk’s Investment in Kildarie common stock

Answer to Problem 4APSA
Solution:
The carrying (Book) value per share of Selk’s Investment in Kildarie common stock = $ 29 per share.
Explanation of Solution
The above answer can be explained as under −
Given,
- Carrying value of investment = $ 1,560,000
- Number of shares purchased = 60,000 shares
Thus, the carrying (Book) value per share has been calculated.
To compute:
Net Increase or decrease in Selk’s equity from January 5, 2017 through January 2, 2017

Answer to Problem 4APSA
Solution:
The net Increase in Selk’s equity from January 5, 2017 through January 2, 2017 = $ 682,000
Explanation of Solution
The above answer can be explained as under −
Given,
- Earnings from Kildarie − 2015 = $ 232,800
- Earnings from Kildarie − 2016 = $ 295,200
- Gain on sale of Investment = $ 154,000
Thus, the net Increase in Selk’s equity from January 5, 2017 through January 2, 2017 has been determined.
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