E 17-15

Situation 1: Journal entries by Hatcher Cosmetics:

To record purchase of 20,000 shares of Ramirez Fashion at a cost of $14 per share:
March 18,2019

Equity Investments ......................................................... 280,000

Cash ......................................................................... 280,000

To record the dividend revenue from Ramirez Fashion:

June 30, 2019
Cash ................................................................................. 7,500
Dividend Revenue ($75,000 X 10%) ....................... 7,500

To record the investment at fair value:

December 31, 2010
Securities Fair Value Adjustment .................................... 20,000
Unrealized Holding Gain or Loss—Income ............. 20,000*
*($15 – $14) X 20,000 shares = $20,000

Situation 2: Journal entries by Holmes, Inc.:

To record the purchase of 25% of Nadal Corporation’s ordinary shares:
January 1, 2010
Equity Investments ............................................................ 67,500
Cash [(30,000 X 25%) X $9] ....................................... 67,500
Since Holmes, Inc. obtained significant influence over Nadal Corp., Holmes, Inc. now employs
the equity method of accounting.

To record the receipt of cash dividends from Nadal Corporation:

June 15, 2010
Cash ($36,000 X 25%) ........................................................ 9,000
Equity Investments .................................................... 9,000
To record Holmes’s share (25%) of Nadal Corporation’s net income of $85,000:
December 31, 2010
Equity Investments (25% X $85,000) ................................ 21,250
Revenue from Investment ......................................... 21,250

E 17-16

A. The 2019 adjusting entry.

Unrealized Holding Gain or Loss—Income ............. 5,900
Securities Fair Value Adjustment .................... 5,900

B. The sale of the Parker shares.

 Cash [(1,500 X £45) – £1,200] ................................... 66,300
Loss on Sale of Equity Investment ............................. 5,200
Equity Investments ............................................ 71,500

C. The purchase of the McDowell shares

Brokerage Expense ................................................... 1,300
Equity Investments (700 X £75) ................................ 52,500
Cash .................................................................... 53,800

D. The 2020 adjusting entry for the trading portfolio.

Investments Cost Fair value Unrealized

holding gain (loss)

Beilman Corp., Ordinary £180,000 £175,000 £(5,000)

McDowell Corp., Ordinary 52,500 50,400 (2,100)

Duncan, Inc., Preference 60,000 58,000 (2,000)

Total portfolio £292,500 £283,400 (9,100)

adjustment—Cr. (5,900)

Securities fair value £(3,200)

adjustment—Cr.

Unrealized Holding Gain or Loss— Income ............................................... 3,200

Securities Fair Value Adjustment ........................................................ 3,200