Answer and Explanation:
Phelps Inc
a)
Date Account titles and Explanation Debit ($) Credit ($)
Dec.31,2020
Dr Equity Investments 1,200,000
Cr Cash 1,200,000
June 30,2021
Dr Cash (50,000 shares * $0.85) 42,500
Cr Dividend Revenue 42,500
Dec. 31, 2021
Dr Cash (50,000 shares * $0.85) 42,500
Cr Dividend Revenue 42,500
Dr Fair Value Adjustment (Available-for-Sale) 150,000
Cr Unrealized Holding Gain or Loss - Equity* 150,000
Unrealized Holding Gain or Loss - Equity-
Amount ($)
Cost 1,200,000
Fair Value (50,000 shares * $27) 1,350,000
Unrealized Gain or (Loss) 150,000
b)
Date Particulars Debit ($) Credit ($)
Dec.31,2020
Dr Equity Investments (Kulikowski Stock)
1,200,000
Cr Cash 1,200,000
June 30,2021
Dr Cash (50,000 shares * $0.85) 42,500
Cr Equity Investment (Kulikowoski Stock) 42,500
Dec. 31, 2021
Dr Cash (50,000 shares * $0.85) 42,500
Cr Equity Investments (Kulikowski) 42,500
Dec 31, 2021
Dr Equity Investment (Kulikowski Stock) 146,000
CrRevenue from Investments (730000 * 20%) 146,000
c)
Reporting of investment in securities on the balance sheet:
Fair value method = (1,200,000+150,000)
= 1,350,000
Equity method = (1,200,000-42,500-42,500+146,000) = 1,261,000
Reporting on net income on the income statement:
Fair value method = Dividend Revenue = (42,500+42,500)= 85,000
Equity meethod = Revenue from investments = 146,000
