Q. 4SE_2 - Horngren'S Financial And Managerial Accounting

Question

Question: S10-4 Accounting for equity investments 

On January 1, 2018, Bryant, Inc. decides to invest in 3,750 shares of Farrier stock when the stock is selling for \(16 per share. On August 1, 2018, Farrier paid a \)0.70 per share cash dividend to stockholders. On December 31, 2018, Farrier reports net income of $50,000 for 2018. Assume Farrier has 15,000 shares of voting stock outstanding during 2018 and Bryant has significant influence over Farrier.

Requirements 

Journalize the transactions related to Bryant’s investment in the Farrier stock during 2018.

Step-by-Step Solution

Answer

Both sides of the journal totals $75,125.

Step 1: Definition of Cash Dividend

The cash is given as a reward to the shareholders from the profit generated by the business entity is known as a cash dividend.

Step 2: Journal Entries for Investment

Date	Accounts and Explanation	Debit $	Credit $
1 Jan 2018	Investment in Farrier Corporation	$60,000
	Cash		$60,000
1 Aug 2018	Cash	$2,625
	Investment in Farrier Corporation		$2,625
31 Dec 2018	Investment in Farrier	$12,500
	Revenue from investment		$12,500
		$75,125	$75,125