Armonico Capital Partners, Ltd. acquired the following equity investments at the beginning of year 1 to be held in a trading portfolio.

Share prices at the end of years 1 and 2 are presented below.

Required
a. Prepare the journal entry to record the acquisition of the investments.
b. Prepare the journal entry to record the end of year 1 adjusting entry.
c. Assume that Armonico sells 15,000 MBW Company shares for $ 16 per share at the beginning of year 2. Prepare the journal entry required to record the sale. Armonico does not correct the fair value adjustment account at this time.
d. Prepare the journal entry to record the end of year 2 adjusting entry.
e. What is the effect of these investments on earnings in years 1 and 2?

Transcribed Image Text:

Finelli MBW Brothers Company Description Number of shares 15,500 20,000 x $18 Share acquisition price 387500 $360,000 Market price per share x $25 Finlli MBW Brothers Company Fair Value End of year 1 End of year 2 $19 S23 S22 $28