Question

Year 1

Jan.		2		Purchased 75,000 shares of Grecco Co. common stock for $531,000 cash. Grecco has 300,000 shares of common stock outstanding, and its activities will be significantly influenced by Kodax.
Sept.		1		Grecco declared and paid a cash dividend of $1.70 per share.
Dec.		31		Grecco announced that net income for the year is $504,900.

Year 2

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 $730,400.
Dec.		31		Kodax sold 9,000 shares of Grecco for $131,000 cash.

Prepare journal entries to record the above transactions and events of Kodax Company.

Answer 1

Date Credit Debit $ 53,000 Janus General Jowrnal Long-term investments - Crecco Cash (To record purchase of investment) $ 53,000 Year 1, Sepi Cash $ 127,500 $127,500 Long-term investments - Grecco (To record receipt of cash dividend) Yearl, I Long-term in Dec 31 & 126, 225 $126, 225 Long-term investments - Grecco Earnings from long-term investment (to record equity in investee earnings Year 2 $ 255,000 I Cash Juni $ 255,000 Long-term investments - Grecco (To record receipt of cash dividend) Year 2 $182,600 I Long-term investments - Grecco &182, bob Earnings from long-term investm- (Torecard equity in investee earnings) Year 2 $ 131,000 Dec 31 Cash Long-term investments - Crecco Gain on sale of investment (to record sale of investment) $ 54,879 & 76, 121

calculation: Years, sep. 1 Record receipt of cash dividend = 75,000 shares & $1. To per share = $127,500 Year 1, Dec.31 Record equity in investee earnings = & 504, qoox $ 504,900x75,000 300,000 = $126,225 Year 2, June 1 Record receipt of cash dividend = 75,000 883.40 = $ 255,000 Dec.3) Record equity in investee earnings = $ 730,400 X (75,000/300,000 = $182, 600

Dec 31 Record sale of investment. Book value (Grecco co. stock) Original cost $ 531,000 Less. Year 1 Dividends & 127,500 Add: Share of years earnings & 126, 225 Less: Year 2 Dividends $ 255,000 Add. Shares of year2 earnings & 182, boo Book value at date of sale 1 & 457,325 Book value of shares sold (457,325x & s4.879. [9,000/75000)) Year2, Decal Gain on sale of investment = cash - Long-term investments- Grecco = $131,000 - $ 54,879 = $ 76, 121