Question

Jenney Company had these transactions pertaining to stock investments: Feb. 1 Purchased 2,000 shares of Moure Company (10%) for $75,000 cash. June 1 Received cash dividends of $2 per share on Moure stock. Oct. 1 Sold 1,200 shares of Moure stock for $62,400. The entry to record the purchase of the Moure stock would include a a. debit to Stock Investments for $45,900. b. credit to Cash for $55,900. c. debit to Stock Investments for $75,000. d. debit to Investment Expense for $5,100 On January 1, 2020, Loko Corporation purchased 25% of the common stock outstanding of Temne Corporation for $270,000. During 2020, Temne Corporation reported net income of $80,000 and paid cash dividends of $40,000. The balance of the Stock Investments- Loko account on the books of Temne Corporation at December 31, 2020 is a. $270,000. b. $280,000. c. $350,000 d. $310,000 3) 4) Nasu Corporation purchased 1,000 shares of Messi common stock ($50 par) at $180 per share as a short-term investment. The shares were subsequently sold at $188 per share. The cost of the securities purchased and gain or loss on the sale were Cost $150,000 $180,000 $188,000 $180,000 Gain or Loss $2,000 gain $8,000 gain $8,000 gain $2,000 loss (O a. b. C. cobey d. nnu 21

Answer 1

Answer-2:

In equity method the investing company records the investment in associate initially at cost.

In this case, JenneyCompany purchased 2,000 shares of Moure Company for $75,000

Hence Jenney Company should record the investment stock at cost i.e. $75,000.

Journal entry for the same would be-

Stock investment                     $75,000

      Cash                                                $75,000

So, option c is the correct answer.

Answer-3:

$ Investment in Moure Company as on January 01, 2020 Add: Share in profit of Moure Company for FY 2020 ($80,000 x 25%) Less: Dividend received from Moure Company in FY 2020 ($40,000 x 25%) Carrying amount of investment as at December 31, 2020 270,000 20,000 10,000 280,000

Hence, option b is the correct answer.

Answer-4:

Nasu Corporation should record the investment stock at cost of 1,000 × $180 = $180,000

Gain on sale = 1,000 × ($188 - $180) = $8,000

Hence, option b is the correct answer.