Posthorn Corporation Acquired 20,000 of the 100,000 Outstanding Common Shares

question 64

Essay

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.)
Required:
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.

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Definitions:

FAB Sequences

Stands for Features, Advantages, and Benefits; a sales technique that links product features to their advantages and the benefits for the customer.

Preparation

The process of getting ready for a specific event, activity, or undertaking by planning and arranging the necessary components.

Customer Understanding

The process and result of comprehending customers' needs, preferences, and behaviors.

Trial Close

A technique used in sales to gauge a potential buyer's interest or objections by asking for their opinion or commitment before the final close.