Problem 2 (25 points)

Facts:

Samwise Corp. purchased the following securities in 2019, with the intention to hold them for three years:

• 4,500 shares of Smeagol Co.s 56,250 shares of outstanding common stock for $87,750 cash
• 17,350 shares of Saruman Ltd.s 116,000 shares of outstanding common stock for $1,006,300
• 850 shares of Arwen Inc.s 85,000 shares of outstanding common stock for $36,125.

The total fair market value of Samwises equity investments at the end of 2019 equaled $1,120,075.

In 2020, the following transactions occurred:

• June 6: Samwise Corp. sold 4,500 shares of Smeagol Co. common stock for $22 per share, less fees of $0.50 per share.

• October 31: Samwise Corp. purchased 10,000 shares of Aragorn Inc.s 25,000 shares of outstanding common stock for $67 per share, less fees of $1.35 per share. Samwise intends to hold the shares for at least two years.

• November 1: Arwen Inc. declared and issued a 10% stock dividend when the fair market value of its stock was $37 per share.

• December 31: Aragorn declared and paid cash dividends of $10,000 to all shareholders on record as of that date (dividends are not prorated by ownership period). Saruman Ltd. announced 2020 net income of $2,235,098. Arwen Inc. announced 2020 net income of $998,247,130 and Aragorn Inc. announced a net loss for 2020 equal to $129,489.

• On December 31, the fair market value of each of Samwises equity investments is as follows:

Smeagol Co. $23 per share

Saruman Ltd. $61 per share

Arwen Inc. $45 per share

Aragorn Inc. $64 per share

Required:

1. Record the all necessary entries for Samwise in 2020 related to its equity investments/equity transactions. (20 points)