Koala Had the Following Transactions Relating to Its Investments During

question 101

Essay

Koala had the following transactions relating to its investments during 2013. Koala uses the effective interest method of amortization of premiums or discounts when applicable.
a. On July 1, 2013, 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 held-to-maturity by Koala and had a fair value of $440,000 plus accrued interest on December 31, 2013.
b. On July 1, 2013, Koala acquired 10,000 shares of Gorilla at a price of $41 per share. On December 31, 2013, the ex-dividend date, dividends of $2.00 per share were declared with an expected date of payment of January 15, 2014. On December 31, 2013, the fair value of the Gorilla shares had increased to $42 per share. The shares are classified as available-for-sale by Koala.
c. On July 1, 2013, 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, 2013 and declared and paid total dividends of $10,000 to its shareholders on December 31, 2013. On December 31, 2013, 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, 2013 and December 31, 2013, including any journal entries required relating to the change in fair value for the year.

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