Explanation Prepare journal entry for the purchase of 15,000 shares of Company S at $25 price per share and a brokerage of $150. Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) February 10 Investments–Company S 375,150 Cash 375,150 (To record purchase of shares of Company S for cash) Table (1) Investments–Company S is an asset account. Since stock investments are purchased, asset value increased, and an increase in asset is debited. Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited. Working Notes: Compute amount of cash paid to purchase Company S’s stock. Cash paid = { ( Number of shares purchased× Price per share ) + Brokerage commission } = ( 15,000 shares ×$25 ) + $ 150 = $375,150 Prepare journal entry for the dividend received from Company S for 10,000 shares. Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) April 12 Cash 6,000 Dividend Revenue 6,000 (To record receipt of dividend revenue) Table (2) Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited. Dividend Revenue is a revenue account. Since revenues increase equity, equity value is increased, and an increase in equity is credited. Working Notes: Compute amount of dividend received on Company S’s stock. Dividend received = { Number of shares × Dividend per share } = 15,000 shares ×$0 .40 = $6,000 Prepare journal entry for sale of 6,000 shares of Company S at $32, with a brokerage of $120. Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) May 29 Cash 191,880 Gain on Sale of Investments 41,820 Investments–Company S 150,060 (To record sale of shares) Table (3) Cash is an asset account

13th Edition

ISBN: 9781337575614

Author: WARREN

Publisher: CENGAGE L

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Question

Chapter 13, Problem 2APE

To determine

Stock investments:

Stock investments are equity securities which claim ownership in the investee company and pay dividend revenue to the investor company.

Cost method:

Cost method is the accounting method used for accounting stock or equity investments which claim less than 20% of the outstanding stock of the investee company.

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.

Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To journalize: The stock investment transactions under the cost method

Expert Solution & Answer

Chapter 13 Solutions

FINANCIAL+MANG.-W/ACCESS PRACTICE SET

Ch. 13 - Prob. 1DQ Ch. 13 - What causes a gain or loss on the sale of a bond...Ch. 13 - Prob. 3DQ Ch. 13 - Prob. 4DQ Ch. 13 - Prob. 5DQ Ch. 13 - Prob. 6DQ Ch. 13 - Prob. 7DQ Ch. 13 - Prob. 8DQ Ch. 13 - What are the factors contributing to the trend...Ch. 13 - Prob. 10DQ

Ch. 13 - Prob. 1APE Ch. 13 - Bond investment transactions Journalize the...Ch. 13 - Prob. 2APE Ch. 13 - Stock investment transactions On September 12,...Ch. 13 - Prob. 3APE Ch. 13 - Prob. 3BPE Ch. 13 - Prob. 4APE Ch. 13 - Prob. 4BPE Ch. 13 - Prob. 5APE Ch. 13 - Prob. 5BPE Ch. 13 - Prob. 6APE Ch. 13 - Prob. 6BPE Ch. 13 - Prob. 1EX Ch. 13 - Prob. 2EX Ch. 13 - Prob. 3EX Ch. 13 - Prob. 4EX Ch. 13 - Prob. 5EX Ch. 13 - Entries for investment in stock, receipt of...Ch. 13 - Prob. 7EX Ch. 13 - Prob. 8EX Ch. 13 - Entries for stock investments, dividends, and sale...Ch. 13 - Prob. 10EX Ch. 13 - Prob. 11EX Ch. 13 - Prob. 12EX Ch. 13 - Prob. 13EX Ch. 13 - Prob. 14EX Ch. 13 - Prob. 15EX Ch. 13 - Prob. 16EX Ch. 13 - Fair value journal entries, trading investments...Ch. 13 - Prob. 18EX Ch. 13 - Prob. 19EX Ch. 13 - Prob. 20EX Ch. 13 - Prob. 21EX Ch. 13 - Prob. 22EX Ch. 13 - Prob. 23EX Ch. 13 - Prob. 24EX Ch. 13 - Prob. 25EX Ch. 13 - Prob. 26EX Ch. 13 - Prob. 27EX Ch. 13 - Prob. 28EX Ch. 13 - Prob. 29EX Ch. 13 - Debt investment transactions, available-for-sale...Ch. 13 - Prob. 2APR Ch. 13 - Stock investment transactions, equity method and...Ch. 13 - Prob. 4APR Ch. 13 - Prob. 1BPR Ch. 13 - Prob. 2BPR Ch. 13 - Stock investment transactions, equity method and...Ch. 13 - Prob. 4BPR Ch. 13 - Selected transactions completed by Equinox...Ch. 13 - Benefits of fair value On July 16, 1998, Wyatt...Ch. 13 - Prob. 2CP Ch. 13 - Prob. 3CP Ch. 13 - Prob. 4CP

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