Reference no: EM132683768
Problem - Stock investment transactions, equity method and available-for-sale securities
Samson Products, Inc., is a wholesaler of men's hair products. The company began operations on January 1, 2012. The following transactions relate to securities acquired by Samson Products, Inc., which has a fiscal year ending on December 31:
2012
Jan. 3. Purchased 5,000 shares of Merlin Inc. as an available-for-sale investment at $22 per share, including the brokerage commission.
July 8. Merlin Inc. stock was split two for one. The regular cash dividend of $0.40 per share was received on the stock after the stock split.
Oct. 19. Sold 1,200 shares of Merlin Inc. stock at $13 per share, less a brokerage commission of $50.
Dec. 12. Received the regular cash dividend of $0.40 per share.
Dec. 31. Merlin Inc. is classifi ed as an available-for-sale investment and is adjusted to a fair value of $9.50 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment.
2013
Jan. 5. Purchased an infl uential interest in Juarez Co. for $540,000 by purchasing 60,000 shares directly from the estate of the founder of Juarez. There are 150,000 shares of Juarez Co. stock outstanding.
July 9. Received the regular cash divided of $0.50 per share on Merlin Inc. stock.
Dec. 8. Received the regular cash dividend of $0.50 per share plus an extra dividend of $0.05 per share on Merlin Inc. stock.
Dec. 31. Received $21,000 of cash dividends on Juarez Co. stock. Juarez Co. reported net income of $96,000 in 2013. Samson Products uses the equity method of accounting for its investment in Juarez Co.
Dec. 31. Merlin Inc. is classifi ed as an available-for-sale investment and is adjusted to a fair value of $10 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the increase in fair value from $9.50 to $10 per share.
Instructions -
1. Journalize the entries to record the preceding transactions.
2. Prepare the investment-related asset and stockholders' equity balance sheet disclosures for Samson Products, Inc., on December 31, 2013, assuming the Retained Earnings balance on December 31, 2013, is $395,000.
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