Question

Listed below are a few events and transactions of Kodax Company Year 1 Jan. 2 Purchased 30,000 shares of Grecco Co. common stock for $411,000 cash. Grecco has 90,000 shares of common stock outstanding, and its activities will be significantly influenced by Kodax. Sept. 1 Grecco declared and paid a cash dividend of $1.50 per share. Dec. 31 Grecco announced that net income for the year is $486,900. Year 2 June 1 Grecco declared and paid a cash dividend of $2.10 per share. Dec. 31 Grecco announced that net income for the year is $702,750. Dec. 31 Kodax sold 3,000 shares of Grecco for $71,000 cash. Prepare journal entries to record the above transactions and events of Kodax Company. (Do not round intermediate calculations and round your final answers to the nearest dollar amount.) View transaction list View journal entry worksheet No Date General Journal Debit Credit 1 Jan. 2. Year 1 408,000 408,000

Answer 1

Answer Credit Journal Entry Date Account Titles and Explanation Jan, 2 Year 1 Long-term investments - Grecco Cash (To record the Purchase of Investment) Debit $411,000 $411,000 $45,000 Sept, 1 Year 1 Cash (30,000 x $1.50) Long-term investments - Grecco (To record the dividend received) $45,000 $162,300 Dec, 31 Year 1 Long-term investments - Grecco ($486,900 x (30,000 / 90,000)] Earnings from long-term Investment (To record the net income) $162,300 $63,000 June 1 Year 2 Cash (30,000 x $2.10) Long-term Investments - Grecco (To record the dividend received) $63,000 $234,250 C, 31 Year 2 Long-term investments - Grecco [$702,750 x (30,000 / 90,000)] Earnings from long-term Investment (To record the net income) $234,250

$71,000 Dec, 31 Year 2 Cash Gain on Sale of Investment Long-term Investments - Grecco (To record the sale of Investment) $1,045 $69,955 Explanations Calculation of Gain on Sale of Investment Original Cost of Investment Less: Dividends received - Year 1 Add: Earning from Investment - Year 1 Less: Dividends received - Year 2 Add: Earning from Investment - Year 2 Book Value at the date of Sale $411,000 ($45,000) $162,300 ($63,000) $234,250 $699,550 Book Value of Share Sold = $699,550 x 3,000 / 30,000 = $69,955 Gain on Sale of Investment = $71,000 - $69,955 = $1,045