Green Corporation acquired 45,000 shares of the outstanding common stock of Brow
ID: 2419489 • Letter: G
Question
Green Corporation acquired 45,000 shares of the outstanding common stock of Brown Company for $14.00 per share. The following events occurred during the year. 6/15/2015 Brown declared and paid $0.75 per share cash dividend. 12/10/2015 Brown declared and paid $0.80 per share cash dividend. 12/31/2015 Brown reported net income for the year of $425,000. The market price of Brown common stock was $17 per share on the last day of the year. Instructions: (a) Prepare the journal entries for Green in 2015, assuming that the purchase of Brown stock constituted less than 10% of Brown's outstanding shares. Green treats this investment as available-for-sale securities. (b) Prepare the journal entries for Green in 2015, assuming that the purchase of Brown stock constituted 32% of Brown's outstanding shares. Solutions: Date Account Debit Credit Less than 10% ownership: 1/1/2015 Available-for-sale Securities 630,000 Cash 630,000 45,000 sh x $14 6/15/2015 Cash 33,750 Dividend Revenue 33,750 45,000 sh x $0.75 12/10/2015 Cash 36,000 Dividend Revenue 36,000 45,000 sh x $0.80 12/31/15 Available-for-sale Securities 135,000 Unrealized Gain on Available-for-sale Securities 135,000 45,000 x $17 =$765,000 - $630,000 = $135,000 32% ownership: 1/1/2015 Investment in Brown Company 630,000 Cash 630,000 45,000 sh x $14 6/15/2015 Cash 33,750 Investment in Brown Company 33,750 45,000 sh x $0.75 12/10/2015 Cash 36,000 Investment in Brown Company 36,000 45,000 sh x $0.80 12/31/2015 Investment in Brown Company 136,000 Income from Brown Company 136,000 $425,000 x 32% Green Corporation acquired 45,000 shares of the outstanding common stock of Brown Company for $14.00 per share. The following events occurred during the year. 6/15/2015 Brown declared and paid $0.75 per share cash dividend. 12/10/2015 Brown declared and paid $0.80 per share cash dividend. 12/31/2015 Brown reported net income for the year of $425,000. The market price of Brown common stock was $17 per share on the last day of the year. Instructions: (a) Prepare the journal entries for Green in 2015, assuming that the purchase of Brown stock constituted less than 10% of Brown's outstanding shares. Green treats this investment as available-for-sale securities. (b) Prepare the journal entries for Green in 2015, assuming that the purchase of Brown stock constituted 32% of Brown's outstanding shares. Solutions: Date Account Debit Credit Less than 10% ownership: 1/1/2015 Available-for-sale Securities 630,000 Cash 630,000 45,000 sh x $14 6/15/2015 Cash 33,750 Dividend Revenue 33,750 45,000 sh x $0.75 12/10/2015 Cash 36,000 Dividend Revenue 36,000 45,000 sh x $0.80 12/31/15 Available-for-sale Securities 135,000 Unrealized Gain on Available-for-sale Securities 135,000 45,000 x $17 =$765,000 - $630,000 = $135,000 32% ownership: 1/1/2015 Investment in Brown Company 630,000 Cash 630,000 45,000 sh x $14 6/15/2015 Cash 33,750 Investment in Brown Company 33,750 45,000 sh x $0.75 12/10/2015 Cash 36,000 Investment in Brown Company 36,000 45,000 sh x $0.80 12/31/2015 Investment in Brown Company 136,000 Income from Brown Company 136,000 $425,000 x 32%Explanation / Answer
Working note:
Date Account title and equation Debit Credit 01-01-2015 Available-for-sale Securities 630,000 Cash 630,000 45,000 sh x $14 6/15/2015 Cash 33,750 Dividend income 33,750 45,000 sh x $0.75 12-10-2015 Cash 36,000 Dividend income 36,000 45,000 sh x $0.80 12/31/15 Available-for-sale Securities 135,000 Unrealized Gain on Available-for-sale Securities 135,000 45,000 x $17 =$765,000 - $630,000 = $135,000 32% ownership: 01-01-2015 Investment in Brown Company Cash 630,000 630,000 45,000 sh x $14 6/15/2015 Cash Dividend income 33,750 33,750 45,000 sh x $0.75 12-10-2015 Cash Dividend income 36,000 36,000 45,000 sh x $0.80Related Questions
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