Explanation Stock investments: Stock investments are equity securities which claim ownership in the investee company and pay a 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. Prepare journal entry for the purchase of 2,000 shares of Company A at $50 price per share and a brokerage of $200. Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) September 12 Investments–Company A 100,200 Cash 100,200 (To record purchase of shares of Company A for cash) Table (1) Investments–Company A 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 Notes: Compute amount of cash paid to purchase Company A’s stock. Cash paid = { ( Number of shares purchased× Price per share ) + Brokerage commission } = ( 2,000 shares ×$50 ) + $ 200 = $100,200 Prepare journal entry for the dividend received from Company A for 2,000 shares. Date Account Titles and Explanations Post. Ref. Debit ($) Credit ($) October 15 Cash 1,000 Dividend Revenue 1,000 (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 Notes: Compute amount of dividend received on Company A’s stock. Dividend received = { Number of shares × Dividend per share } = 2,000 shares ×$0

Cengagenowv2, 1 Term Printed Access Card For Warren/reeve/duchac's Financial Accounting, 15th

15th Edition

ISBN: 9781337272353

Author: WARREN, Carl; Reeve, James M.; Duchac, Jonathan

Publisher: Cengage Learning

See similar textbooks

Question

Chapter 15, Problem 2PEB

To determine

Journalize the stock investment transactions under the cost method.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Chapter 15, Problem 2PEA

Chapter 15, Problem 3PEA

Students have asked these similar questions

please provide correct answer of this General accounting question

i want to this question answer General accounting

Need help

Chapter 15 Solutions

Cengagenowv2, 1 Term Printed Access Card For Warren/reeve/duchac's Financial Accounting, 15th

Ch. 15 - Why might a business invest cash in temporary...Ch. 15 - What causes a gain or loss on the sale of a bond...Ch. 15 - When is the equity method the appropriate...Ch. 15 - Prob. 4DQ Ch. 15 - Prob. 5DQ Ch. 15 - Prob. 6DQ Ch. 15 - Prob. 7DQ Ch. 15 - Prob. 8DQ Ch. 15 - Prob. 9DQ Ch. 15 - Prob. 10DQ

Ch. 15 - Prob. 1PEA Ch. 15 - Prob. 1PEB Ch. 15 - Prob. 2PEA Ch. 15 - Prob. 2PEB Ch. 15 - Prob. 3PEA Ch. 15 - Prob. 3PEB Ch. 15 - On January 1, Valuation Allowance for Trading...Ch. 15 - On January 1, Valuation Allowance for Trading...Ch. 15 - On January 1, Valuation Allowance for...Ch. 15 - On January 1, Valuation Allowance for...Ch. 15 - On June 30, Setzer Corporation had a market price...Ch. 15 - Prob. 6PEB Ch. 15 - Prob. 1E Ch. 15 - Prob. 2E Ch. 15 - Bocelli Co. purchased 120,000 of 6%, 20-year Sanz...Ch. 15 - Prob. 4E Ch. 15 - Prob. 5E Ch. 15 - On February 22, Stewart Corporation acquired...Ch. 15 - The following equity investment transactions were...Ch. 15 - Yerbury Corp. manufactures construction equipment....Ch. 15 - Seamus Industries Inc. buys and sells investments...Ch. 15 - Prob. 10E Ch. 15 - Prob. 11E Ch. 15 - On January 6, Year 1, Bulldog Co. purchased 34% of...Ch. 15 - Hawkeye Companys balance sheet reported, under the...Ch. 15 - JED Capital Inc. makes investments in trading...Ch. 15 - The investments of Charger Inc. include a single...Ch. 15 - Gruden Bancorp Inc. purchased a portfolio of...Ch. 15 - Last Unguaranteed Financial Inc. purchased the...Ch. 15 - The income statement for Delta-tec Inc. for the...Ch. 15 - Highland Industries Inc. makes investments in...Ch. 15 - The investments of Steelers Inc. include a single...Ch. 15 - Prob. 21E Ch. 15 - Storm, Inc. purchased the following...Ch. 15 - During Year 1, its first year of operations,...Ch. 15 - During Year 2, Copernicus Corporation held a...Ch. 15 - Prob. 25E Ch. 15 - The market price for Microsoft Corporation closed...Ch. 15 - Prob. 27E Ch. 15 - Prob. 28E Ch. 15 - Prob. 29E Ch. 15 - Soto Industries Inc. is an athletic footware...Ch. 15 - Rios Financial Co. is a regional insurance company...Ch. 15 - Forte Inc. produces and sells theater set designs...Ch. 15 - Prob. 4PA Ch. 15 - Rekya Mart Inc. is a general merchandise retail...Ch. 15 - Prob. 2PB Ch. 15 - Glacier Products Inc. is a wholesaler of rock...Ch. 15 - Teasdale Inc. manufactures and sells commercial...Ch. 15 - Selected transactions completed by Equinox...Ch. 15 - Prob. 1CP Ch. 15 - Prob. 2CP Ch. 15 - Berkshire Hathaway, the investment holding company...Ch. 15 - On July 16, 20Y1, Wyatt Corp. purchased 40 acres...Ch. 15 - International Financial Reporting Standard No. 16...

Knowledge Booster

Similar questions

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education