Question

On January 2, 2018, Sanborn Tobacco Inc, bought 5% of Jackson Industry's capital stock for $106 million Jackson Industry's net Income for the year ended December 31, 2018, was $136 million. The fair value of the shares held by Sanborn was $130 million at December 31, 2018. During 2018, Jackson declared a dividend of $76 million. Required: 1. Prepare all appropriate journal entries related to the investment during 2018 2. Assume that Sanborn sold the stock on January 2, 2019 for $142 million. Prepare the journal entries Sanbom would use to record the sale

Answer 1

Answer:

1 .
Date	Accounts titles and Explanation	Debit ($)(million)	Credit ($)(million)
-1	Investment in Common Shares	106
	Cash		106
	(To record purchase of common stock of Jackson Industry)
-2	No Journal Entry Required
-3	Cash ($76 * 0.05)	3.80
	Dividend Revenue		3.80
	(To record investment revenue)
-4	Fair Value Adjustment(130-106)	24
	Unrealized holding gains or losses		24
	(To record fair value adjustment)
(2).
Date	Accounts titles and Explanation	Debit ($)(million)	Credit ($)(million)
2019	Fair Value Adjustment(142-130)	12
	Unrealized holding gains or losses		12
Jan. 2, 2019	Cash	142
	Investment in Common Shares		106
	Fair Value Adjustment		36
	(To record sale of common stock of Jackson Industry)