Bengal Company, which began operations on January 3, 2011, had the following subsequent transactions and events in its long-term investments.

2011

Jan. 5 Bengal purchased 15,000 shares (25% of total) of Bloch’s common stock for $187,500.

Aug. 1 Bloch declared and paid a cash dividend of $0.95 per share.

Dec. 31 Bloch’s net income for 2011 is $92,000, and the fair value of its stock is $12.90 per share.

2012

Aug. 1 Bloch declared and paid a cash dividend of $1.25 per share.

Dec. 31 Bloch’s net income for 2012 is $76,000, and the fair value of its stock is $13.55 per share.

2013

Jan. 8 Bengal sold all of its investment in Bloch for $204,750 cash.

Part 1

Assume that Bengal has a significant influence over Bloch with its 25% share.

Required

1. Prepare journal entries to record these transactions and events for Bengal.

2. Compute the carrying (book) value per share of Bengal’s investment in Bloch common stock as reflected in the investment account on January 7, 2013.

3. Compute the net increase or decrease in Bengal’s equity from January 5, 2011, through January 8, 2013, resulting from its investment in Bloch.

Part 2

Assume that although Bengal owns 25% of Bloch’s outstanding stock, circumstances indicate that it does not have a significant influence over the investee and that it is classified as an available-for-sale security investment.

Required

1. Prepare journal entries to record these transactions and events for Bengal. Also prepare an entry dated January 8, 2013, to remove any balance related to the fair value adjustment.

2. Compute the cost per share of Bengal’s investment in Bloch common stock as reflected in the investment account on January 7, 2013.

3. Compute the net increase or decrease in Bengal’s equity from January 5, 2011, through January 8, 2013, resulting from its investment in Bloch.