Analyze the accounting procedures carried out by ABC to account the aforementioned investment-related transactions. Prepare the necessary adjusting entries on December 31, 2018, assuming, stock rights are to be accounted for separately, and, average method is used for valuing each unit of stock investment.
INVESTMENT AT COST WITH ERRORS 4
On January 1, 2015, ABC purchased 20,000 shares on XYZ, P100, at P110 per share. This was debited to the investment account. On March 1, 2015, XYZ issued right to ABC, each permitting the purchase of ¼ share at par. No entry was made. The bid price of the share was 140 and there was no quoted price for the rights.
On April 1, 2015, ABC paid for the new shares charging the payment to the investment account. Since ABC felt that it had been assessed by XYZ, the dividends received from XYZ in 2015 and 2016 (10% on December 31 of each year) are credited to the investment account until the debit was fully offset.
On January 1, 2017, ABC received 50% stock dividend from XYZ. On the same date, the shares received as stock dividend were sold at P160 per share and proceeds were credited to income. On December 31, 2017, the shares of XYZ were split 2 for 1. ABC found that each new share was worth P5 more than the P110 paid for the original shares.
Accordingly, ABC debited the investment account with the additional shares received at P110 per share and credited income. On June 30, 2018, ABC sold one-half of the investment at P92 per share and credited the proceeds to the investment account.
Analyze the accounting procedures carried out by ABC to account the aforementioned investment-related transactions. Prepare the necessary
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