Question

The Trendy Clothing Corporation reported the following transactions for the year 2019:

Jan.1                Purchased 35% of the common shares of Cool Hoodies Corporation for $700,000.

This is a long-term investment giving Trendy Clothing significant influence over the operations of Cool Hoodies.

Sept. 30           Received a $42,000 dividend on the Cool Hoodies Corporation stock.

Dec. 31            Cool Hoodies Corporation reported net income of $176,200 for the year ended December 31, 2019.

Dec. 31            Trendy Clothing sold 50% of the Cool Hoodies shares for $400,000.

Prepare journal entries to record all the above events for the Trendy Clothing Corporation.

		Debit	Credit
Jan 1
Sept 30
Dec 31
	.

Answer 1

SOLUTION:
Journal Entries
Sr. No.	Date	Account Title and explanation	Debit	Credit
1	Jan 01. 2019	Investment in Cool Hoodies	$                 7,00,000
		Cash		$                  7,00,000
		(To record the purchase of investment)
2	Sept 30. 2019	Cash	$                    42,000
		Investment in Cool Hoodies		$                      42,000
		(To record the receipt of share in dividends)
3	Dec 31. 2019	Investment in Cool Hoodies ($ 176,2000 X 35%)	$                    61,670
		Investment Revenue		$                      61,670
		(To record the revenue in investment )
4	Dec 31. 2019	Cash	$                 4,00,000
		Investment in Cool Hoodies		$                  3,59,835
		Gain on Sale of investment		$                      40,165
		(To record the sale of investment)
	Working Notes:
		Calculation of gain on sale of investment
		Purchase value of the investment	$                 7,00,000
		Add: Increase in Investment ($ 176,200 X 35%)	$                    61,670
		Less: Reduction in investment (Recd. Dividend)	$                    42,000
		Value of the investment as on Dec 31	$                 7,19,670
		50 % Value of investment ($ 719,670 X 50%)	$                 3,59,835
		Sale Value of investment (50% Shares Sold)	$                 4,00,000
		Less: 50% Value of investment	$                 3,59,835
		Gain on sale of investment	$                    40,165