- Accounting for Investment Transactions Part 13 - Subsection (a) Emily Incorpor

Question

- Accounting for Investment Transactions

     Part 13 - Subsection (a)

Emily Incorporated buys 20 percent(150,000 shares) of the capital stock of Dono Corporation on January 1, 2013, for $2,900,000. Emily Inc plans to hold these shares for an indefinite period of time. These shares do not give Emily Inc the ability to apply significant influence over Dono Corp.

Using the information given above prepare the applicable journal entries for transactions “(1)” through “(5)” below:

Prepare the entry to account for the acquisition of 20 percent(1500,0000 shares) of Dono Corps capital stock.

March 31, 2013 Dono Corp stock is trading at $25 a share.

On December 31, 2013 Dono Corp reports $1,500,000 in net income.

On January 1, 2014 Emily Incorporated receives a cash dividend of $300,000($2 per share) on the Dono Corp Investment.

On March 31, 2014 Emily Incorporated sold all shares of Dono Corp Stock at the current spot rate of $27.50 per share.

Unrealized Gains/Loss

Investment

Explanation / Answer

1) Investment in stocks Dr 2900000               Cash Cr 2900000 ( To record acquisition of shares) 2) No entry for the change in market price for unrealised gain 3) No entry for reported net income as there is no significant influence 4) Cash Dr 300000              Dividend Income Cr 300000 ( To record dividend received) 5) Cash 4125000             Investment in stocks 2900000             Gain on sale of investment 1225000 ( To record sale of investment @ 25)

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