Question

Tresh Company purchased 42,000 shares of common stock of Mann Corporation as a long-term investment for $1,000,000. During the year, Mann Corporation reported net income of $200,000 and paid dividends of $80,000. Instructions (a) Assuming that the 42,000 shares represent a 15% interest in Mann Corporation: 1. Prepare the journal entry to record the investment in Mann stock. 2. Prepare any entries that Tresh Company should make in accounting for its investment in Mann stock during the year. 3. What is the balance of the Stock Investments account on Tresh Company's books at the end of the year? (b) Repeat requirement (a) above except assume that the 42,000 shares represent a 25% interest in Mann Corporation.

Answer 1

(a) Assuming that the 42,000 shares represent a 15% interest in Mann Corporation

No.	General Journal	Debit	Credit
1	Stock Investments	1000000
	Cash		1000000
	(To record purchase of investment in Mann stock)

2. No journal entries required

3. Balance of Stock Investments account: $1,000,000.

(b) Assuming that the 42,000 shares represent a 25% interest in Mann Corporation

No.	General Journal	Debit	Credit
1	Stock Investments	1000000
	Cash		1000000
	(To record purchase of investment in Mann stock)
2	Stock Investments (25% x $200,000)	50000
	Investment income		50000
	(To record share in net income of Mann Corporation)
	Cash	20000
	Stock Investments (25% x $80,000)		20000
	(To record dividends received)

3. Balance of Stock Investments account: $1,000,000 + $50,000 - $20,000 = $1,030,000.