Turner Company purchased 35 of the outstanding stock of ICA

Turner Company purchased 35% of the outstanding stock of ICA Company for $10,900,000 on January 2, 2018. Turner elects the fair value option to account for the investment. During 2018, ICA earns $840,000 of income and on December 30 pays a dividend of $580,000. On December 31, 2018, the fair value of Turner’s investment has increased to $13,300,000.

Prepare the journal entries in the books of Turner to account for this investment during 2018. Assume that Turner will account for the investment for a trading security. (If no entry is required for a transaction/event, select \"No journal entry required\" in the first account field.)

1.Record the investment.

2.Record the investment revenuerealized

3.Record the fair value adjustment.

Solution

Date Account Debit credit January 2,2018 Investment in ICA 10,900,000 cash 10,900,000 [Being investment made] December30,2018 cash 203000 Interest/Investmentrevenue 203000 [beingrevenue realized 580000*.35] December31/2018 Fair value adjustment 2,400,000 net unrealized holding gains and losses-I/S 2,400,000 [Being unrealized gain recorded13300000-10900000]