accounting for long term investment in securities 461319

Pillar Steel Co., which began operations on January 4, 2011, had the following subsequent transactions and events in its long-term investments.

2011

Jan. 5 Pillar purchased 64,000 shares (30% of total) of Kildaire’s common stock for $1,875,540.

Oct. 23 Kildaire declared and paid a cash dividend of $3.20 per share.

Dec. 31

Kildaire’s net income for 2011 is $1,167,000, and the fair value of its stock at December 31 is $35.00 per share.

2012

Oct. 15 Kildaire declared and paid a cash dividend of $2.50 per share.

Dec. 31

Kildaire’s net income for 2012 is $1,477,200, and the fair value of its stock at December 31 is $38.00 per share.

2013

Jan. 2 Pillar sold all of its investment in Kildaire for $2,217,600 cash.

Assume that Pillar has a significant influence over Kildaire with its 30% share of stock.

Required:

1. Prepare journal entries to record these transactions and events for Pillar.

2.

Compute the carrying (book) value per share of Pillar’s investment in Kildaire common stock as reflected in the investment account on January 1, 2013.

3.

Compute the net increase or decrease in Pillar’s equity from January 5, 2011, through January 2, 2013, resulting from its investment in Kildaire.

Part 2

Assume that although Pillar owns 30% of Kildaire’s outstanding stock, circumstances indicate that it does not have a significant influence over the investee and that it is classified as an available-for-sale security investment.

Required:

1.

Prepare journal entries to record the preceding transactions and events for Pillar. Also prepare an entry dated January 2, 2013, to remove any balance related to the fair value adjustment.