Required information

Exercise 12-16 (Algo) Equity investments; fair value through net income [LO12-5]

Skip to question

[The following information applies to the questions displayed below.]

On January 2, 2021, Sanborn Tobacco Inc. bought 10% of Jackson Industrys capital stock for $107 million. Jackson Industrys net income for the year ended December 31, 2021, was $137 million. The fair value of the shares held by Sanborn was $132 million at December 31, 2021. During 2021, Jackson declared a dividend of $77 million.

Required: 1. Prepare all appropriate journal entries related to the investment during 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) Journal Entries Are:

• Record the purchase of Jackson Industry capital stock for $107 million.
• Record Sanborn Tobacco's portion of Jackson Industry's net income of $137 million.
• Record the dividend revenue.
• Record the fair value adjustment.

2. Assume that Sanborn sold the stock on January 2, 2022 for $144 million. Prepare the journal entries Sanborn would use to record the sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

Journal Entries Are:

• Record the entry to adjust to fair value on the date of sale.
• Record the sale of stock on January 2, 2022 for $144 million.