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Prepare the investment-related asset

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Reference no: EM132692341

Problem - Forte Inc. produces and sells theater set designs and costumes. The company began operations on January 1, Year 1. The following transactions relate to securities acquired by Forte Inc., which has a fiscal year ending on December 31:

Year 1

Jan. 22. Purchased 22,000 shares of Sankal Inc. as an available-for-sale security at $18 per share, including the brokerage commission.

Mar. 8. Received a cash dividend of $0.22 per share on Sankal Inc. stock.

Sept. 8. A cash dividend of $0.25 per share was received on the Sankal stock.

Oct. 17. Sold 3,000 shares of Sankal Inc. stock at $16 per share less a brokerage commission of $75.

Dec. 31. Sankal Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $25 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment.

Year 2

Jan. 10. Purchased an influential interest in Imboden Inc. for $720,000 by purchasing 96,000 shares directly from the estate of the founder of Imboden Inc. There are 300,000 shares of Imboden Inc. stock outstanding.

Mar. 10. Received a cash dividend of $0.30 per share on Sankal Inc. stock.

Sept. 12. Received a cash dividend of $0.25 per share plus an extra dividend of $0.05 per share on Sankal Inc. stock.

Dec. 31. Received $57,600 of cash dividends on Imboden Inc. stock. Imboden Inc. reported net income of $450,000 in Year 2. Forte Inc. uses the equity method of accounting for its investment in Imboden Inc.

31. Sankal Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $22 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the decrease in fair value from $25 to $22 per share.

Instructions -

1. Journalize the entries to record these transactions.

2. Prepare the investment-related asset and stockholders' equity balance sheet presentation for Forte Inc. on December 31, Year 2, assuming that the Retained Earnings balance on December 31, Year 2, is $389,000.

Reference no: EM132692341

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