Required: 1. Determine the balance of the investment account as it was kept by Jen Company. 2. Determine the correct balance of the investment account as the transactions should have been recorded using the average method. (Any stock rights are not accounted for separately.) 3. The gain on sale on June 30, 2022 amounts to
Jen COMPANY completed the following transactions in relation to its long-term investments in Jisoo Company.
On January 1, 2019, Jen Company purchased 20,000 shares of Jisoo Company, P100 par, at P110 per share. This was debited to the investment account.
On March 1, 2019, Jisoo Company issued rights to Jen Company, each permitting the purchase of 1/4 share at par. No entry was made. The bid price of the share was 140 and there was no quoted price for the rights.
Jen Company was advised that it would “lose out on the investment if it did not pay in the money for the rights.” Thus, on April 1, 2019, Jen Company paid for the new shares charging the payment to the investment account.
Since Jen Company felt that it had been assessed by Jisoo Company, the dividends received from Jisoo Company in 2019 and 2020 (10% on December each year) are credited to the investment account until the debit was fully offset.
On January 1, 2021, Jen Company received 50% stock dividend from Jisoo Company. On the same date, the shares received as stock dividend were sold at P160 per share and the proceeds were credited to income.
On December 31, 2021, the shares of Jisoo Company were split 2-for-1. Jen Company found that each new share was worth P5 more than the P110 paid for the original shares.
Accordingly, Jen Company debited the investment account with the additional shares received at P110 per share and credited to income.
On June 30, 2022, Jen Company sold one-half of the investment at P92 per share and credited the proceeds to the investment account.
Required:
1. Determine the balance of the investment account as it was kept by Jen Company.
2. Determine the correct balance of the investment account as the transactions should have been recorded using the average method. (Any stock rights are not accounted for separately.)
3. The gain on sale on June 30, 2022 amounts to
4. The adjustment to
5. Prepare
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