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Orbit Services, Inc. pays $740,000 to acquire 35% (100,000 shares) of the voting stock of State Investments, Inc. on January 5, 2025. State Investments, Inc. declares and pays a cash dividend of $4.40 per share on June 14, 2025. Which of the following is the correct journal entry for the transaction on June 14, 2025? O Cash 440,000 Dividend Revenue O Cash Retained Earnings O Equity Investments-State Investments, Inc. Cash O Cash Equity Investments-State Investments, Inc. 440,000 440,000 440,000 440,000 440,000 440,000 440,000

Orbit Services, Inc. pays $740,000 to acquire 35% (100,000 shares) of the voting stock of State Investments, Inc. on January 5, 2025. State Investments, Inc. declares and pays a cash dividend of $4.40 per share on June 14, 2025. Which of the following is the correct journal entry for the transaction on June 14, 2025? O Cash 440,000 Dividend Revenue O Cash Retained Earnings O Equity Investments-State Investments, Inc. Cash O Cash Equity Investments-State Investments, Inc. 440,000 440,000 440,000 440,000 440,000 440,000 440,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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**Orbit Services, Inc. Acquisition of State Investments, Inc. Shares** *Transaction Overview:* Orbit Services, Inc. pays $740,000 to acquire 35% (100,000 shares) of the voting stock of State Investments, Inc. on January 5, 2025. Subsequently, State Investments, Inc. declares and pays a cash dividend of $4.40 per share on June 14, 2025. Determine the correct journal entry for Orbit Services, Inc. on June 14, 2025. *Journal Entry Options:* 1. **Option 1:** - **Debit:** Cash $440,000 - **Credit:** Dividend Revenue $440,000 2. **Option 2:** - **Debit:** Cash $440,000 - **Credit:** Retained Earnings $440,000 3. **Option 3:** - **Debit:** Equity Investments—State Investments, Inc. $440,000 - **Credit:** Cash $440,000 4. **Option 4:** - **Debit:** Cash $440,000 - **Credit:** Equity Investments—State Investments, Inc. $440,000 *Explanation:* Shareholders receive dividends proportional to their holdings. With 100,000 shares held by Orbit Services, Inc., receiving $4.40 per share results in $440,000 in dividends. The correct accounting treatment depends on Orbit's investment method, typically resulting in recognizing dividend revenue or an adjustment to the investment account.
Transcribed Image Text:**Orbit Services, Inc. Acquisition of State Investments, Inc. Shares** *Transaction Overview:* Orbit Services, Inc. pays $740,000 to acquire 35% (100,000 shares) of the voting stock of State Investments, Inc. on January 5, 2025. Subsequently, State Investments, Inc. declares and pays a cash dividend of $4.40 per share on June 14, 2025. Determine the correct journal entry for Orbit Services, Inc. on June 14, 2025. *Journal Entry Options:* 1. **Option 1:** - **Debit:** Cash $440,000 - **Credit:** Dividend Revenue $440,000 2. **Option 2:** - **Debit:** Cash $440,000 - **Credit:** Retained Earnings $440,000 3. **Option 3:** - **Debit:** Equity Investments—State Investments, Inc. $440,000 - **Credit:** Cash $440,000 4. **Option 4:** - **Debit:** Cash $440,000 - **Credit:** Equity Investments—State Investments, Inc. $440,000 *Explanation:* Shareholders receive dividends proportional to their holdings. With 100,000 shares held by Orbit Services, Inc., receiving $4.40 per share results in $440,000 in dividends. The correct accounting treatment depends on Orbit's investment method, typically resulting in recognizing dividend revenue or an adjustment to the investment account.
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