Question

On January 1 of the current year, PurchaseAgent.com acquired 35 percent (800,000 shares) of the common stock of E-Transaction Corporation. The accounting period for both companies ends December 31. July 2 E-Transaction declared a cash dividend of $5 per share. July 16 E-Transaction paid the cash dividend declared on July 2. Dec. 31 E-Transaction reported net income of $400,000. Prepare the journal entries for each of the above transactions that occurred during the current year for PurchaseAgent.com. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• E-Transaction declared a cash dividend of $5 per share.

• E-Transaction paid the cash dividend declared on July 2.
• E-Transaction reported net income of $400,000.

Answer 1

Solution:

Date	Accounts and Explanation	Debit	Credit
July. 2	No journal entry required	$                      -
			$                   -
July. 16	Cash(800,000 shares*$5)	$       4,000,000
	Equity Investment		$    4,000,000
	( To record dividend revenue earned)
Dec. 31	Equity Investment($ 400,000*35%)	$           140,000
	Equity Income / Investment Income		$        140,000
	( To record net income earned)

Notes:

1) No entry is required at the time of declaration of dividend.