Koala Had the Following Transactions Relating to Its Investments During

question 112

Essay

Koala had the following transactions relating to its investments during 2017.Koala uses the effective interest method of amortization of premiums or discounts when applicable.
a.On July 1,2017,Koala acquired a $400,000,16%,8-year government bond with interest paid semi-annually on January 1 and July 1.Because the market rate of interest was 12% on that date,Koala paid $480,847 for the bond.The bonds were classified as at amortized cost by Koala and had a fair value of $440,000 plus accrued interest on December 31,2017.
b.On July 1,2017,Koala acquired 10,000 shares of Gorilla at a price of $41 per share.On December 31,2017,the ex-dividend date,dividends of $2.00 per share were declared with an expected date of payment of January 15,2018.On December 31,2017,the fair value of the Gorilla shares had increased to $42 per share.Management irrevocably elect to classify the investment at fair value through OCI.
c.On July 1,2017,Koala acquired 45,000 shares (20%)of the outstanding shares of Black Bear at a price of $15 per share,giving it significant influence over Black Bear.Black Bear had net income of $600,000 for the six months ended December 31,2017 and declared and paid total dividends of $10,000 to its shareholders on December 31,2017.On December 31,2017,Black Bear's shares had a fair value of $19 per share.
Required:
Provide all journal entries required relating to these investments on July 1,2017 and December 31,2017,including any journal entries required relating to the change in fair value for the year.

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Definitions:

Dividends In Arrears

Dividend payments that a company owes to its preferred shareholders but has not yet paid out.

Common Stock Dividend

A portion of a company's earnings distributed to holders of its common shares, often in the form of cash or additional shares.

Retained Earnings

Profits that a company has earned to date, less any dividends or other distributions paid to shareholders.

Market Value

The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller.