28) An investor owns 25% of the outstanding common stock of Stokes Corporation. Stokes Corporation declares...
28) An investor owns 25% of the outstanding common stock of Stokes Corporation. Stokes Corporation declares and pays a $100,000 dividend. What journal entry should the investor prepare?
A) debit Equity-Method Investment for $25,000 and credit Cash for $25,000
B) debit Cash for $25,000 and credit Equity-Method Investment for $25,000
C) debit Cash for $25,000 and credit Dividend Revenue for $25,000
D) debit Dividend Receivable for $25,000 and credit Dividend Revenue for $25,000
Homework Answers
| B) Debit Cash for $25,000 and Credit Equity-Method Investment for $25,000 |
Explanation:-
| Account Titles and explanation | Debit | Credit |
| Cash ($100,000 ×25%) | $25,000 | |
| Equity-method Investment | $25,000 |
| When a investor owns 20% - 50% in a company stock, it means that the investor has a significant influence over the company and the investor needs to use Equity- Method. |
|
In this question, the investor own 25% in stokes corporation. It means that the investor has a significant influence over the company and for this reason while receiving dividend from Stokes corporation, the Equity- Method investment is credited. |
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