PR 15-3B 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. |
| 31. | Merlin Inc. is classified 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 influential 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. |
| 31. | Merlin Inc. is classified 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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