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Q. 4SE_2

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Horngren'S Financial And Managerial Accounting
Found in: Page 567

Short Answer

Question: S10-4 Accounting for equity investments

On January 1, 2018, Bryant, Inc. decides to invest in 3,750 shares of Farrier stock when the stock is selling for $16 per share. On August 1, 2018, Farrier paid a $0.70 per share cash dividend to stockholders. On December 31, 2018, Farrier reports net income of $50,000 for 2018. Assume Farrier has 15,000 shares of voting stock outstanding during 2018 and Bryant has significant influence over Farrier.

Requirements

Journalize the transactions related to Bryant’s investment in the Farrier stock during 2018.

Both sides of the journal totals $75,125.

See the step by step solution

Step by Step Solution

Step 1: Definition of Cash Dividend

The cash is given as a reward to the shareholders from the profit generated by the business entity is known as a cash dividend.

Step 2: Journal Entries for Investment

Date

Accounts and Explanation

Debit $

Credit $

1 Jan 2018

Investment in Farrier Corporation

$60,000

Cash

$60,000

1 Aug 2018

Cash

$2,625

Investment in Farrier Corporation

$2,625

31 Dec 2018

Investment in Farrier

$12,500

Revenue from investment

$12,500

$75,125

$75,125

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