Reference no: EM132604374
Chloe Corporation ("Chloe") is considering making a significant long-term investment in Atom Ltd. ("Atom"), a young and very promising company. Chloe decides to make a smaller investment first, and if Atom turns out to be successful, Chloe intends to make an additional investment to reach significant influence. Atom has 200,000 shares authorized, and 100,000 shares outstanding.
On January 1, 2020, Atom sold 10,000 of its own shares to Chloe for $ 400,000 in cash.
Additional information:
1. On November 1, 2020, Atom declares a total cash dividend of $ 200,000.
2. Atom reports $ 225,000 net income for 2020. Its stock price (i.e. fair value) on December 31, 2020 is $ 38 per share.
3. On November 1, 2021, Atom announces a total dividend of $ 250,000 to be paid on January 3, 2022.
4. Atom reports $ 320,000 net income for 2021. Its stock price (i.e. fair value) on December 31, 2021 is $ 44 per share.
5. On March 1, 2022, Chloe is approached by an investment fund which offers to buy 5,000 Atom shares for $ 45 per share. Chloe accepts the offer and sells the shares on that day.
Instructions
Assuming Chloe uses the Fair Value through Other Comprehensive Income model (FV-OCI) to account for this investment:
Question a) Prepare the journal entries in Chloe's books for the 2020 calendar year.
Question b) Prepare the journal entries in Chloe's books for the 2021 calendar year.
Question c) Prepare the journal entries in Chloe's books for the 2022 calendar year.
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