Reference no: EM132420622
Swifty Corp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company's profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years, Swifty has had a policy of investing idle cash in equity securities. In particular, Swifty has made periodic investments in the company's principal supplier, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries, Swifty does not have significant influence over the operations of Norton Industries.
Cheryl Thomas has recently joined Swifty as assistant controller, and her first assignment is to prepare the 2017 year-end adjusting entries for the accounts that are valued by the "fair value" rule for financial reporting purposes. Thomas has gathered the following information about Swifty' pertinent accounts.
1.Swifty has equity securities related to Delaney Motors and Patrick Electric. During 2017, Swifty purchased 91,000 shares of Delaney Motors for $1,358,000; these shares currently have a fair value of $1,675,000. Swifty' investment in Patrick Electric has not been profitable; the company acquired 54,000 shares of Patrick in April 2017 at $20 per share, a purchase that currently has a value of $717,000.
2.Prior to 2017, Swifty invested $22,284,000 in Norton Industries and has not changed its holdings this year. This investment in Norton Industries was valued at $21,309,000 on December 31, 2016. Swifty' 12% ownership of Norton Industries has a current fair value of $22,189,000 on December 2017.
Prepare the appropriate adjusting entries for Swifty as of December 31, 2017, to reflect the application of the "fair value" rule for the securities described above
Prepare the entries for the Norton investment, assuming that Swifty owns 25% of Norton's shares. Norton reported income of $516,000 in 2017 and paid cash dividends of $109,000.
to record revenue
Equity investments 129,000
129,000
to record dividends
Cash 27,250
27,250
Can you please show me how to calculate and prepare adjusting entries for Swifty as of December 31, 2017 to reflect the application of the fair value rule for the securities described above and the journal entires. I have the Norton investment calculated but what title do i use for the journal entries for the credits and why
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