Question

Use journal entries to record the following transactions of Beacon Inc.. Assume the transactions occur in 2018 1) 2) 3) 4) Purchased 2,800 shares of New City Corp. common stock for $40 per share. These securities are publicly traded and Beacon has no influence over New City's business decisions. Received a cash dividend of $3.20 per share from New City Year-end market price of New City common stock is $30.40 per share Sold 1,200 shares for $25.60 per share, the closing price for the day

Answer 1

IN THE BOOKS OF BEACON INC. FOR THE YEAR 2018

1.) For purchase of shares of New City:-

Shares Of New City A/c ---------------------------------------------Dr (2800*40) $112,000.00

To Bank/Cash A/c-----------------------------------------------------------------------------Cr $112,000

(Being Investment in Shares made in New City)

2.) For Receiving Cash Dividend:-

Bank/ Cash A/c -----------------------------------------------------Dr,(2800*3.20) $8960.00

To Dividend Received A/c -----------------------------------------------------------Cr $8960.00

(Being Dividend received for 2800 shares)

3.) Total Shares purchased = 2800

Less:- Shares sold = 1200

Closing Stock =1600

These 1600 shares are to be shown in the Balance sheet on the Asset side as investment made and are to be valued at Cost i.e the value to be shown is $ (1600*40) 64000/- . No treatment is to be made at present for the unrealized loss of $ 9.60 (i.e. 40.00- 30.40) Profit or Loss will be booked when actual sales are made. Since Carrying amount of Investment are to be booked at Cost when investments made does not exceed 20%.

No Journal Entry to be made

4.) Sold 1200 shares:-

Bank/Cash A/c -----------------------------------Dr (1200* 25.60) $30720.00

Loss on Sale of Shares A/c -------------------Dr [1200* (40.00-25.60)] $17280.00

To Shares of New City---------------------------------------------------------Cr(1200*40) $48000.00

(Being Shares sold at a Loss of $14.40 per share booked)

Profit & Loss A/c ------------------------------------------Dr $ 17,280.00

To Loss on sale of Shares-----------------------------------------Cr $ 17,280.00

(Being loss on sale of Shares transferred to Profit & Loss A/c)