Koala Had the Following Transactions Relating to Its Investments During

question 131

Essay

Koala had the following transactions relating to its investments during 2020. Koala uses the effective interest method of amortization of premiums or discounts when applicable.
a. On July 1, 2020, 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, 2020.
b. On July 1, 2020, Koala acquired 10,000 shares of Gorilla at a price of $41 per share. On December 31, 2020, the ex-dividend date, dividends of $2.00 per share were declared with an expected date of payment of January 15, 2021. On December 31, 2020, 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, 2020, 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, 2020 and declared and paid total dividends of $10,000 to its shareholders on December 31, 2020. On December 31, 2020, 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, 2020 and December 31, 2020, including any journal entries required relating to the change in fair value for the year.

Analyze the impact of financial decision-making on working capital and its components.

Understand the limitations and interpretations of financial ratios and their application in analyzing a company's performance.

Understand the structure and components of a company's balance sheet.

Analyze a company's income statement to evaluate its profitability.

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Definitions:

Animal Zygote

The initial cell formed when two gamete cells (egg and sperm) are joined by means of sexual reproduction, marking the beginning of a new organism's development.

Haploid Cell

A cell that contains a single set of chromosomes, half the diploid number, typical of gametes.

Gametes

Reproductive cells that unite during sexual reproduction to form a new organism.

Diploid Zygote

The cell formed when two haploid gametes (from each parent) merge during fertilization, containing two complete sets of chromosomes, one from each parent.