Problem
Stock Investment Transactions, Equity Method and Available-for-Sale Securities
Roman Products, Inc., is a wholesaler of men's hair products. The company began operations on January 1, 2014. The following transactions relate to securities acquired by Roman Products, Inc., which has a fiscal year ending on December 31:
2014
Jan. 3 Purchased 6,800 shares of Whalen Inc. as an available-for-sale security at $48 per share, including the brokerage commission.
July 8 Received a cash dividend of $0.60 per share on the Whalen stock.
Oct. 19 Sold 2,000 shares of Whalen Inc. stock at $53 per share, less a brokerage commission of $60.
Dec. 12 A cash dividend of $0.60 per share was received on the Whalen stock.
Dec. 31 Whalen Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $46 per share.
Use the valuation allowance for available-for-sale investments account in making the adjustment.
2015
Jan. 5 Purchased an influential interest in Tasmania Inc. for $550,000 by purchasing 66,500 shares directly from the
estate of the founder of Tasmania Inc. There are 190,000 shares of Tasmania Inc. stock outstanding.
July 9 Received a cash dividend of $0.70 per share on Whalen Inc. stock.
Dec. 8 Received a cash dividend of $0.70 per share plus an extra dividend of $0.15 per share on Whalen Inc. stock.
Dec. 31 Received $17,000 of cash dividends on Tasmania Inc. stock. Tasmania Inc. reported net income of $70,000 in 2015.
Roman Products uses the equity method of accounting for its investment in Tasmania Inc.
Dec. 31 Whalen Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $51 per share. Use the valuation
allowance for available-for-sale investments account in making the adjustment for the change in fair value from $46 to $51 per share.
Required:
1. Journalize the entries to record the preceding transactions. For a compound transaction, if an amount box does not require an entry, leave it blank.
2. Prepare the investment-related asset and stockholders' equity balance sheet presentation for Roman Products, Inc., on December 31, 2015, assuming the Retained Earnings balance on December 31, 2015, is $402,000.