Question

8. On May 15, 2018, Stacey Co. invests $10,000 in Dave, Inc. stock. Dave pays Stacey a $500 dividend on November 15, 2018. Stacey sells the Dave stock on December 10, 2018, for $9,400. Assume the Stacey Co. does not have significant influence over Dave, Inc. Journalize the 2018 transactions related to Stacey's investment in Dave stock. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.) Credit Begin by journalizing Stacey's initial investment in Dave, Inc., stock on May 15, 2018. Date Accounts and Explanation Debit 2018 May 15 10000 10000 Debit Credit Next, journalize Stacey's receipt of the November 15, 2018 dividend. Date Accounts and Explanation 2018 Nov. 15 Cash Dividend Revenue Debit Credit Now journalize Stacey's sale of the Dave, Inc., stock on December 10, 2018. Date Accounts and Explanation 2018 Dec. 10 10 Cash 9400 600 10000 Adjusted available-for-sale debt securities to market value. Adjusted trading debt securities to market value. Disposed of bond at maturity. Disposed of investment in stock. Purchased investment in bonds. Purchased investment in stock. Received cash dividend.

Answer 1

As Stacey doesn't have significant influence over Dave Inc, acquisition of stock will be recorded using Cost method.

1. Shares purchased will be treated as an asset investment in equity and shown as non-current asset in balance sheet.

2. Any dividends received will be shown as income .

3. Any gain/loss on the sale of share will be reported as gain/loss on sale of equity investments in the income statement.

Journal entries based on above explanations:

Debit Credit Accounts 2018 15-May Equity Investments Cash 10,000 10,000 (Purchased investment in stock) 500 15-Nov Cash Dividend Revenue (Received cash dividend) 500 10-Dec Cash 9400 Loss on disposal 600 Equity investments (disposal of investment in stock) 10,000

equity investment account will be closed for the amount of shares sold on dec10 .