Question

Exercise 15-12 Securities transactions; equity method LO P4 Listed below are a few events and transactions of Kodax Company 2017 Jan. 2 Purchased 34,000 shares of Grecco Co. common stock for $421,000 cash plus a broker's fee of $4,300 cash. Grecco has 85,000 shares of common stock outstanding, and its policies will be significantly influenced by Kodex. Sept. 1 Crecco declared and paid a cash dividend of $2.80 per share. Dec. 31 Grecco announced that net incone for the year is $506,400. 2018 June 1 Grecco declared and paid a cash dividend of $3.40 per share. Dec. 31 Grecco announced that net income for the year is $732,900. Dec. 31 Kodax sold 13,000 shares of Grecco for $385,000 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.)

Answer 1

Debit Credit Date Jan 2, 2017 General Journal Long term investments - Greece $425,300 $425,300 Cash (To record purchase of investment) $ 95,200 sept 1. 2017 $95,200 Cash Long term investments - Grecco (To record receipt of cash dividend) Dec 31, Long term investments - Grecco $202,560 2017 Earnings from long term $202,560 investment (To record equity in investee earnings June 1, 2018 Cash $ 115,600 Long term investments-Grecco (To second beceipts of cash dividends $ 115,600 Dec 31, Long term investments - Grecio $293,160 2018 Earnings from long term investment To record equity in investee earnings $293,160 Dec 31, cash 2018 $385,ooo Long term investments - Grecco Gain on sale of investment (To record sale of investment) $271,555 $ 113,445

Calculation: Jan 2, 2017: Long term investments = Common Stock & Broker's fee = $421,000+ $4,300 a $425,300 Sept. 1, 2017 : cash = 34,000 shares & $2.80 per share = $95,200 Dec 31, 2017: Long term investments = [Net Income x (Purchased Shares Common stock Outstanding)] =($ 506,400 ×(34,000 + 85,000) shares] $ 506,400 X 0.4 = $202,560 Junel, 2018 : Cash $3.40 per share – 34,000 shares & = $ 115,600 Dec. 31, 2018 : Long term investments - [$732,900 x(34,000+ 85,000 Jhares) = $ 732,900 x 0.4 - $293,160

Dec 31, 2018: Book value (Grecco Co. stock) at 12/31/2018: Original cost $425,300 hess 2017 dividends. $ 95,200 Add: Share of 2017 earnings $ 202,560 Less: 2018 Dividends. $ 115, 600 Add: Share of 2018 earnings. $293, 160 Book value at date of sale $710,220 Now, Book value of shares sold & Book value at date of sale X (sold shares & Purchased - Shares) = $710,220 x (13,000 + 34,000) staves] a $271,555 (rounded off) So Long team investments = $271,555 Gain on sale of investment = cash – Long term investments = $385,000 - $271,555 - $ 113,445