Aykroyd Corp. was a 30% owner of Martin Company, holding 210,000 shares of Martin's common stock on December 31, 2019. The investment account had the following entries. Investment in Martin 1/1/18 Cost $3,180,000 12/6/18 Dividend received $150,000 12/31/18 Share of income 390,000 12/5/19 Dividend received 240,000 12/31/19 Share of income 510,000 On January 2, 2020, Aykroyd sold 126,000 shares of Martin for $3,440,000, thereby losing its significant influence. During the year 2020, Martin experienced the following results of operations and paid the following dividends to Aykroyd. Martin Income (Loss) Dividends Paid to Aykroyd 2020 $300,000 $50,400 At December 31, 2020, the fair value of Martin shares held by Aykroyd is $1,570,000. This is the first reporting date since the January 2 sale. Instructions a. What effect does the January 2, 2020, transaction have upon Aykroyd's accounting treatment for its investment in Martin? b. Compute the carrying amount of the investment in Martin as of December 31, 2020 (prior to any fair value adjustment). c. Prepare the adjusting entry on December 31, 2020, applying the fair value method to Aykroyd's long-term investment in Martin Company securities.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Aykroyd Corp. was a 30% owner of Martin Company, holding 210,000 shares of Martin's common stock on December 31, 2019. The investment account had the following entries.

Investment in Martin
1/1/18 Cost	$3,180,000	12/6/18 Dividend received	$150,000
12/31/18 Share of income	390,000	12/5/19 Dividend received	240,000
12/31/19 Share of income	510,000

On January 2, 2020, Aykroyd sold 126,000 shares of Martin for $3,440,000, thereby losing its significant influence. During the year 2020, Martin experienced the following results of operations and paid the following dividends to Aykroyd.

	Martin Income (Loss)	Dividends Paid to Aykroyd
2020	$300,000	$50,400

At December 31, 2020, the fair value of Martin shares held by Aykroyd is $1,570,000. This is the first reporting date since the January 2 sale.

Instructions

a. What effect does the January 2, 2020, transaction have upon Aykroyd's accounting treatment for its investment in Martin?

b. Compute the carrying amount of the investment in Martin as of December 31, 2020 (prior to any fair value adjustment).

c. Prepare the adjusting entry on December 31, 2020, applying the fair value method to Aykroyd's long-term investment in Martin Company securities.

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