Brief Exercise 17-05
Fairbanks Corporation purchased 400 shares of Sherman Inc. common stock for $13,200 (Fairbanks does not have significant influence). During the year, Sherman paid a cash dividend of $3.25 per share. At year-end, Sherman stock was selling for $34.50 per share.
Prepare Fairbanks's journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.)
No. Account Titles and Explanation Debit Credit
(a)
(b)
(c)
Ans:
| SL NO | ACCOUNT TITLE | DEBIT | CREDIT |
| A | EQUITY INVESTMENT | $13200 | |
| CASH | $13200 | ||
| B | CASH | $1300 | |
| DIVIDEND REVENUE | $1300 | ||
| C | EQUITY INVESTMENT | $600 | |
| UNREALIZED HOLDING GAIN OR LOSS-EQUITY | $600 |
Notes:
A.$13200-given
B.$3.25*400=$1300
C.Fair value -Purchase price=(400*34.50)-13200=$600