A. On January 1, 2014,Garfield Company purchased 30% of the common shares of Edwards Company for $248,000. During the year, Edwards earned net income of $99,200 and paid dividends of $24,800. Prepare the entries for Garfield Company to record the purchase and any additional entries related to this investment in Edwards Company in 2014.
B. Garfield Company purchased, as an available-for-sale security, $86,300 of the 8%, 5-year bonds of Chester Corporation for $79,757, which provides an 10% return.
Prepare Garfield’s journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the year-end fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) The bonds have a year-end fair value of $81,985.