Answered Essay: Buffalo Corp. was a 30% owner of Carla Company, holding 216,000 shares of Carla’s common stock on December 31, 2016. The i

Question 1

Buffalo Corp. was a 30% owner of Carla Company, holding 216,000 shares of Carla’s common stock on December 31, 2016. The investment account had the following entries.

Investment in Carla
1/1/15 Cost $3,150,000 12/6/15 Dividend received $140,000
12/31/15 Share of income 380,000 12/5/16 Dividend received 250,000
12/31/16 Share of income 500,000

On January 2, 2017, Buffalo sold 108,000 shares of Carla for $3,330,000, thereby losing its significant influence. During the year 2017, Carla experienced the following results of operations and paid the following dividends to Buffalo.

Carla
Income (Loss)
Dividends Paid
to Buffalo
2017 $290,000 $49,000

At December 31, 2017, the fair value of Carla shares held by Buffalo is $1,910,000. This is the first reporting date since the January 2 sale.

(b) Compute the carrying amount of the investment in Carla as of December 31, 2017 (prior to any fair value adjustment).

Carrying amount $

(c) Prepare the adjusting entry on December 31, 2017, applying the fair value method to Buffalo’s long-term investment in Carla Company securities. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Date Account Titles and Explanation Debit Credit
Dec. 31, 2017

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