Chapter 12, Problem 12.16E

Equity investments; fair value through net income

• LO12-4

On January 2, 2018, Sanborn Tobacco Inc. bought 5% of Jackson Industry’s capital stock for $90 million. Jackson Industry’s net income for the year ended December 31, 2018, was $120 million. The fair value of the shares held by Sanborn was $98 million at December 31, 2018. During 2018, Jackson declared a dividend of $60 million.

Required:

1. Prepare all appropriate journal entries related to the investment during 2018.

2. Assume that Sanborn sold the stock on January 2, 2019 for $110 million. Prepare the journal entry Sanborn would use to record the sale.