# On September 12, 2,000 shares of Aspen Company are acquired at a price of $50 per share plus a$200 brokerage commission. On October 15, a $0.50-per-share dividend was received on the Aspen Company stock. On November 10, 1,200 shares of the Aspen Company stock were sold for$42 per share less a $150 brokerage commission. Prepare the journal entries for the original purchase, the dividend, and the sale under the cost method. BuyFindarrow_forward ### Financial Accounting 15th Edition Carl Warren + 2 others Publisher: Cengage Learning ISBN: 9781337272124 #### Solutions Chapter Section BuyFindarrow_forward ### Financial Accounting 15th Edition Carl Warren + 2 others Publisher: Cengage Learning ISBN: 9781337272124 Chapter 15, Problem 2PEB Textbook Problem 12 views ## On September 12, 2,000 shares of Aspen Company are acquired at a price of$50 per share plus a $200 brokerage commission. On October 15, a$0.50-per-share dividend was received on the Aspen Company stock. On November 10, 1,200 shares of the Aspen Company stock were sold for $42 per share less a$150 brokerage commission. Prepare the journal entries for the original purchase, the dividend, and the sale under the cost method.

To determine

Journalize the stock investment transactions under the cost method.

### Explanation of Solution

Stock investments: Stock investments are equity securities which claim ownership in the investee company and pay a 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.

Prepare journal entry for the purchase of 2,000 shares of Company A at $50 price per share and a brokerage of$200.

 Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) September 12 Investments–Company A 100,200 Cash 100,200 (To record purchase of shares of Company A for cash)

Table (1)

• Investments–Company A 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 A’s stock.

Cash paid = {(Number of shares purchased× Price per share)+Brokerage commission}(2,000 shares ×$50)+$200= $100,200 Prepare journal entry for the dividend received from Company A for 2,000 shares.  Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) October 15 Cash 1,000 Dividend Revenue 1,000 (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 A’s stock. Dividend received = {Number of shares × Dividend per share}= 2,000 shares ×$0

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