Chapter 13, Problem 2APE

To determine

Stock investments:

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

To journalize: The stock investment transactions under the cost method