Explanation Journal entry : Journal is the primary record of the business transaction in chronological (date wise) order. Journal entry contains two effects one is debit and other is credit, under double entry book keeping system. Procedure for debiting and crediting an account: Increase in assets account, increase in expenses account, and decrease in liabilities account should be debited. Decrease in assets account, increase in revenue account, and increase in liabilities account should be credited. All transactions affect the accounting equation that is displayed below. The accounting equation should always remain in balance at the time of recording a business transaction: Asset= Liabilites+ Stockholders'equity Prepare the journal entries as shown below. Purchase of common stock: Date Particulars L/F Debit ($) Credit ($) Jan 23 Common Stock ( 1 , 700 shares × $ 155 ) $263,500 Cash $263,500 (To record purchase of common stock) Table 1 Common stock is debited, as it increases the asset account. Cash is credited, as it decreases the asset account. Investment in equity stock: Date Particulars L/F Debit ($) Credit ($) Feb 4 Equity investment $1,020,000 Cash $1,020,000 (To record investment in equity stock) Table 2 Equity investment is debited, as it increases the asset account. Cash is credited, as it decreases the asset account. Payment of cash dividend: Date Particulars L/F Debit ($) Credit ($) Mar 23 Cash ( 8 , 500 shares × $ 3.40 ) $28,900 Dividend received $28,900 (To record cash dividend) Table 3 Cash is debited, as it increases the asset account. Dividend received is credited, as it increases the revenue account. Declaration and payment of cash dividend: Date Particulars L/F Debit ($) Credit ($) Jun 30 Cash ( 13 , 600 shares × $ 2.55 ) $346,800 Equity investment $346,800 (To record cash dividend on equity) Table 4 Cash is debited, as it increases the asset account. Equity investment is credited, as it increases the revenue account. Revenue earned on equity investment: Date Particulars L/F Debit ($) Credit ($) Jun 30 Equity investment ( 40 % × $ 1 , 850 , 000 × 5 12 ) $308,333 Revenue earned $308,333 (To record revenue earned) Table 5 Equity investment is debited, as it increases the asset account. Revenue earned is credited, as it increases the revenue account. Purchase of debt: Date Particulars L/F Debit ($) Credit ($) Oct 15 Held to debt ( 340 bonds × $ 1 , 000 ) $340,000 Cash $340,000 (To record purchase of debt) Table 6 Held to debt is debited, as it increases the asset account

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ISBN: 9780136946601

Author: GORDON

Publisher: PEARSON

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Chapter 16, Problem 16.6P

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To prepare: The general journal entries for the given transactions.

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Chapter 16 Solutions

INTERMEDIATE ACCOUNTING-MYLAB W/ETEXT

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The general journal entries for the given transactions.

Solution Summary: The author explains that journal entry is the primary record of the business transaction in chronological (date wise) order.

To prepare: The general journal entries for the given transactions.

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Chapter 16 Solutions