Provide journal entries for Posthorn Corporation for all transactions relating to its investment in Stamp Company for the year 2017 if it accounts for its investment in Stamp Company as a fair value through profit and loss investment.

Question

Posthorn Corporation acquired 20,000 of the 100,000 outstanding common
shares of Stamp Company on January 1, 2016, for a cash consideration of
$200,000. During 2016, Stamp Company had net income of $120,000 and paid
dividends of $80,000. At the end of 2016, shares of Stamp Company were trading
for $11 each.
During 2017, Stamp Company had a loss of $60,000 and paid dividends of
$40,000. Income for the first half of the year was $80,000 and the loss in the
second half of the year was $140,000. The dividends were paid on June 30. On
July 2, 2017, Posthorn Corporation sold 5,000 shares of Stamp Company for a
consideration of $12 per share. At the end of 2017, the share price of Stamp
Company had fallen to $6 per share. The average of market analysts' forecasts
was that the share price could be expected to rise to $8 per share over the next
five years. (Assume that the future recoverable value of the shares is assessed to
be $8 per share.)

Answer 1

Unrealized gain at December 31, 2018 (3,000 * $200) - $375,000 = $225,000



(a)



(b) The investment would be included in current assets given management's intention to hold them for a short period of time.