2.) On January 1, 2016, Innocente Company purchased 1,000 shares of Entel common

Question

2.) On January 1, 2016, Innocente Company purchased 1,000 shares of Entel common stock at $40 per share. Innocente intends to hold this investment for longer than one year. On June 1, 2016, Entel declares and distributes a cash dividend of $0.50 per share. On December 31, 2016, the market price of Entel's stock is $44 per share. On December 31, 2017, the market price of Entel's stock is $46 per share. On February 1, 2018, the Entel's stock is sold for $48 per share. Innocente Company uses a separate allowance account to adjust the investment. Prepare the journal entries on: 1. January 1, 2016 2. June 1, 2016 3. December 31, 2016 4. December 31, 2017 5. February 1, 2018 Explanations are not required.

Explanation / Answer

Innocente Company
Journal Entries

Date Particulars Dr. $ Cr. $ 1.1.16 Investment in AFSS 40,000 Bank Account 40,000 Purchase of 1,000stocks of $40 each 1.6.16 Bank Account 500 Dividend 500 Dividend received of $0.50 per share 31.12.16 Allowance to adjust investment in AFSS 4,000 Unrealized gain on investment in AFSS 4,000 Stock value increase in market 31.12.17 Allowance to adjust investment in AFSS 2,000 Unrealized gain on investment in AFSS 2,000 Stock value increase in market 1.2.18 Unrealized gain on investment in AFSS 6,000 Allowance to adjust investment in AFSS 6,000 To write off the unrealised gain 1.2.18 Bank Account 48,000 Investment in AFSS 40,000 Gain on Sale of investment in AFSS 8,000 Sale of 1,000stock $48 each

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