Question

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

Jan.1Purchased 35% of the common shares of Cool Hoodies Corporation for $550,000.  

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

Sept. 30Received a $34,000 dividend on the Cool Hoodies Corporation stock.

Dec. 31Cool Hoodies Corporation reported net income of $167,500 for the year ended December 31, 2019.

Dec. 31Trendy Clothing sold 50% of the Cool Hoodies shares for $300,000.

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

Answer 1

SOLUTION:
Journal Entries
Sr. No.	Date	Account Title and explanation	Debit	Credit
1	Jan 01. 2019	Investment in Cool Hoodies	$                 5,50,000
		Cash		$                  5,50,000
		(To record the purchase of investment)
2	Sept 30. 2019	Cash	$                    34,000
		Investment in Cool Hoodies		$                      34,000
		(To record the receipt of share in dividends)
3	Dec 31. 2019	Investment in Cool Hoodies ($ 167,500 X 35%)	$                    58,625
		Investment Revenue		$                      58,625
		(To record the revenue in investment )
4	Dec 31. 2019	Cash	$                 3,00,000
		Investment in Cool Hoodies		$                  2,87,313
		Gain on Sale of investment		$                      12,688
		(To record the sale of investment)
	Working Notes:
		Calculation of gain on sale of investment
		Purchase value of the investment	$                 5,50,000
		Add: Increase in Investment ($ 167,500 X 35%)	$                    58,625
		Less: Reduction in investment (Recd Dividend)	$                    34,000
		Value of the investment as on Dec 31	$                 5,74,625
		50 % Value of investment	$                 2,87,313
		Sale Value of investment	$                 3,00,000
		Less: 50% Value of investment	$                 2,87,313
		Gain on sale of investment	$                    12,688