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 dividend revenue to the investor company.
Fair value method: Fair value method is an accounting method used for accounting stock or equity investments which claim less than 20% of the outstanding stock of the investee company.
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 4,000 shares of Company A at $50 price per share and a brokerage of $400.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | |
September | 12 | Investments–Company A Stock (1) | 200,400 | ||
Cash | 200,400 | ||||
(To record purchase of shares of Company A for cash) |
Table (1)
- Investments–Company A stock is an asset account. Since stock investments are purchased, asset value increased, and an increase in asset is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Working Note (1):
Compute amount of cash paid to purchase Company A’s stock.
Prepare journal entry for the dividend received from Company A for 4,000 shares.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | |
October | 15 | Cash | 2,400 | ||
Dividend Revenue (2) | 2,400 | ||||
(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 Note (2):
Compute amount of dividend received on Company A’s stock.
Prepare journal entry for sale of 3,000 shares of Company A at $40 per share, and a brokerage of $200.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | |
November | 10 | Cash (3) | 119,800 | ||
Loss on Sale of Investments (5) | 30,500 | ||||
Investments–Company A stock (4) | 150,300 | ||||
(To record sale of shares) |
Table (3)
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Loss on Sale of Investments is an expense account. Since expense decrease equity, equity value is decreased, and a decrease in equity is debited.
- Investments–Company T stock is an asset account. Since stock investments are sold, asset value decreased, and a decrease in asset is credited.
Working Note (3):
Compute cash received from sale proceeds.
Working Note (4):
Compute cost of stock investment sold.
Working Note (5):
Compute realized gain (loss) on sale of stock.
Want to see more full solutions like this?
Chapter D Solutions
Financial and Managerial Accounting - Workingpapers
- On September 12, 3,800 shares of Aspen Company are acquired at a price of $43.00 per share plus a $190 brokerage commission. On October 15, a $1.10-per-share dividend was received on the Aspen Company stock. On November 10, 1,520.00 shares of the Aspen Company stock were sold for $36 per share less a $76 brokerage commission. When required, round final answers to the nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank. Prepare the journal entries for the original purchase, the dividend, and the sale under the cost method. Sept. 12 Oct. 15 Nov. 10arrow_forwardOn February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee. This purchase represents less than 20% ownership of Lucas Company. On August 22, Lucas paid a dividend per share of $0.42. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee. Required: Prepare the journal entries for the original purchase, dividend, and sale. If an amount box does not require an entry, leave it blank. Feb. 12 Aug. 22 Nov. 10arrow_forwardOn September 14, 10,000 shares of Grey Company are acquired at a price of $100 per share plus a $500 brokerage fee. DATE Debit Credit X/X b) On October 15, a $0.50-per-share dividend was received on the Grey Company stock. DATE Debit Credit X/X c) On November 10, 1,500 shares of the Grey Company stock were sold for $115 per share less a $50 brokerage fee. DATE Debit Credit X/Xarrow_forward
- On September 12, 2,600 shares of Denver Company’s common stock are acquired at a price of $58 per share plus a $130 brokerage commission. On October 15, an $1.30-per-share dividend was received on the Denver Company stock. On November 10, 1,040 shares of the Denver Company stock were sold for $51 per share less a $52 brokerage commission. At the end of the accounting period on December 31, the fair value of the remaining 1,560 shares of Denver Company’s stock was $50 per share. Denver Company has 360,000 shares of common stock outstanding. Journalize the entries for the original purchase, dividend, sale, and change in fair value under the fair value method. If an amount box does not require an entry, leave it blank. Sep. 12 Oct. 15 Nov. 10 Dec. 31arrow_forwardInstructions On January 23, 15,000 shares of Tolle Company are acquired at a price of $25 per share plus a $145 brokerage commission. On April 12, a $0.30-per-share dividend was received on the Tolle Company stock. On June 10, 6,200 shares of the Tolle Company stock were sold for $34 per share less a $130 brokerage commission. Prepare the journal entries for the original purchase, the dividend, and the sale under the cost method. Refer to the Chart of Accounts for exact wording of account titles. When required, round your answers to the nearest dollar.arrow_forwardOn February 22, Stewart Corporation acquired 7,500 shares of the 265,000 outstanding shares of Edwards Co. common stock at $39.85 plus commission charges of $1,125. On June 1, a cash dividend of S0.85 per share was received. On November 12, 2,500 shares were sold at $48 less commission charges of $300. In your computations, round per share amounts to two decimal places. When required, round final answers to the nearest dollar. a. Using the cost method, journalize the entry for the purchase of stock. Feb. 22 Investments-Edwards Co. Stock Casharrow_forward
- On February 1, Brutus Company purchased 1,000 shares (2% ownership) of Wynne Company common stock for $25 per share. On March 20, Brutus Company sold 200 shares of Wynne stock for $4,700. Brutus received a dividend of $1.20 per share on April 25. On June 15, Marcus sold 300 shares of Wynne stock for $8,500.Prepare the journal entries to record the transactions described above. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit Feb. 1Mar. 20Apr. 25June 15 Feb. 1Mar. 20Apr. 25June 15 Feb. 1Mar. 20Apr. 25June 15 Feb. 1Mar. 20Apr. 25June 15arrow_forwardOn February 22, Stewart Corporation acquired 3,300 shares of the 115,000 outstanding shares of Edwards Co. common stock at $35.85 plus commission charges of $495. On June 1, a cash dividend of $0.60 per share was received. On November 12, 1,100 shares were sold at $43 less commission charges of $132. In your computations, round per share amounts to two decimal places. When required, round final answers to the nearest dollar. a. Using the cost method, journalize the entry for the purchase of stock. b. Using the cost method, journalize the entry for the receipt of dividends. c. Using the cost method, journalize the entry for the sale of 1,100 shares. For a compound transaction, if an amount box does not require an entry, leave it blank.arrow_forwardOn February 22, Stewart Corporation acquired 2,400 shares of the 85,000 outstanding shares of Edwards Co. common stock at $39.90 plus commission charges of $240. On June 1, a cash dividend of $0.75 per share was received. On November 12, 800 shares were sold at $48 less commission charges of $96. In your computations, round per share amounts to two decimal places. When required, round final answers to the nearest dollar. a. Using the cost method, journalize the entry for the purchase of stock. Feb. 22 fill in the blank f30290ff0040fa0_2 fill in the blank f30290ff0040fa0_4 b. Using the cost method, journalize the entry for the receipt of dividends. June 1 fill in the blank 32bfc3f39f9dfaa_2 fill in the blank 32bfc3f39f9dfaa_4 c. Using the cost method, journalize the entry for the sale of 800 shares. For a compound transaction, if an amount box does not require an entry, leave it blank. Nov. 12 fill in the blank…arrow_forward
- On September 1, 1,500 shares of M Company stock are acquired at a price of $24 per share plus a $40 brokerage commission. This was less than 20% ownership in the stock of M Company. On September 1, when recording the journal entry for this transaction, what account would be credited and for what amount for the acquisition of the 1,500 shares of M Company stock? Journal DATE DESCRIPTION PREF DEBIT CREDIT Sept. 1 (?) (?) Credit Investments-M Company Stock, $36,040 Credit Cash, $36,040 Credit Investments-M Company Stock, $36,000 Credit Cash, $36,000arrow_forwardAssume that on February 12, First Union Co. purchases for cash 6,000 shares of Gilbert Co. stock at a price of $22 per share plus a $240 brokerage fee. On April 22, a $0.42- per-shares dividend was received on the Gilbert Co. stock. On May 10, 4,000 shares of the Gilbert Co. stock was sold for $28 per share less a $160 brokerage fee. What accounts would be debited on February 12 for the purchase of the 6,000 shares of Gilbert Stock? DATE DESCRIPTION PREF DEBIT CREDIT Feb. 12 (?) $132,240 (?) $132,240 Investments – Gilbert Co. Stock Dividend receivable Cash Dividend revenuearrow_forwardAssume that on February 12, First Union Co. purchases for cash 6,000 shares of Gilbert Co. stock at a price of $22 per share plus a $240 brokerage fee. On April 22, a $0.42- per-shares dividend was received on the Gilbert Co. stock. On May 10, 4,000 shares of the Gilbert Co. stock was sold for $28 per share less a $160 brokerage fee. What accounts would be credited on April 22 for the receipt of the divided on the Gilbert Co. Stock? DATE DESCRIPTION PREF DEBIT CREDIT Apr. 22 (?) $2,520 (?) $2,520 Investments – Gilbert Co. Stock Dividend receivable Cash Dividend revenue O000arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education