Question

Gioia Company acquired some of the 65,000 shares of outstanding common stock (no par) of Tristezza Corporation during the current year as a long-term investment. The annual accounting period for both companies ends December 31. The following transactions occurred during the current year: Jan. 10 Purchased 17,875 shares of Tristezza common stock at $11 per share. Dec. 31 a. Received the current year financial statements of Tristezza Corporation that reported net income of $80,000. b. Tristezza Corporation declared a cash dividend of $0.60 per share. c. Tristezza Corporation paid the cash dividend declared in (b). d. Determined the market price of Tristezza stock to be $10 per share. Required: 2. Prepare the journal entries for each of these transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Purchased 17,875 shares of Tristezza common stock at $11 per share.
• Received the current year financial statements of Tristezza Corporation that reported net income of $80,000.
• Tristezza Corporation declared a cash dividend of $0.60 per share.
• Tristezza Corporation paid the cash dividend declared of $0.60 per share.
• Determined the market price of Tristezza stock to be $10 per share.

Answer 1

Page-1 Answer: As per the given question Gioia Company acquired some of the 65,000 shades of outstanding common stock of Tristezza cooporation. The answer is the journal entries for each of the transactions. Journal entries on January -10, 2014; Date Account Title Debitis) cadit ( 2014 Investment in affiliates 196,625 Jan-10/ cash 196,625 I (To record the purchase of investment Explanation;- → Investment in affiliates is an investment account and carries de bit balance. Since they are increased on purchase of investments, it is debited. - Cash is an asset account and carries debit balance. Since, cash is paid, it is decreased. Hence it is credited. Journal entries on Januarry-Dec-31,2014: Date / Account Title Debit /credit $ I 2014 Investment in affiliates 29,000 Dec-31 (cash) equity in affiliate 22,000 earnings

Page-2 Explanation: Investment in affiliales is an investment account and carries debit balance. Since, they are increased on purchase of investments, it is debited. - Equity in affiliate earnings is an equity account and carries credit balance. Since it is increased on earnings recorded, it is credited. * Journal entrys to record the dividend received on investments at Dec-3i 2014 Dec-3) Date account title Debit Credit 2014 cash $10,725 Investment in affiliates $10,725 to recold the dividend received on investments Explanation: -o cash is an asset account and carries debit balance. Since dividends are received from affiliates, hence debited.

Page-3 -> Investments in affiliates is an investment account and coneries debit balance. Since dividends are received, they should be adiusted to investments account, hence it is debited. * In equity method no journal entry is required for change in fair value. The investments should be shown at purchase value only.