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Q3SE_1

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

Short Answer

Accounting for equity investments

On January 1, 2018, Bark Company invests $10,000 in Roots, Inc. stock. Roots pays Bark a $400 dividend on August 1, 2018. Bark sells the Roots’s stock on August 31, 2018, for $10,450. Assume the investment is categorized as a short-term equity investment and Bark Company does not have significant influence over Roots, Inc.

Requirements

1. Journalize the transactions for Bark’s investment in Roots’s stock.

Both sides of the journal totals $20,850.

See the step by step solution

Step by Step Solution

Step 1: Definition of Dividend Revenue

The revenue generated through dividends provided by the company to its shareholders is known as dividend revenue.

Step 2: Journal Entry for Transaction of Investment

Date

Accounts and Explanation

Debit $

Credit $

1 Jan 2018

Equity Investment

$10,000

Cash

$10,000

1 Aug 2018

Cash

$400

Dividend revenue

$400

31 Aug 2018

Cash

$10,450

Equity investment

$10,000

Gain on sale of equity investment

$450

$20,850

$20,850

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