Q16E_1 - Horngren'S Financial And Managerial Accounting

Question

Classifying and accounting for equity investments 

Boston Today Publishers completed the following investment transactions during 2018 and 2019:

2018 

Dec. 6 Purchased 2,500 shares of Loveable stock at a price of \(24.00 per share, intending to sell the investment next month. Boston did not have significant influence over Loveable. 

     23. Received a cash dividend of \)1.50 per share on the Loveable stock. 

     31. Adjusted the investment to its market value of \(11.00 per share.

2019 

Jan. 27 Sold the Loveable stock for \)18.20 per share.

Requirements 

1. Journalize Boston Today’s investment transactions. Explanations are not required.

Step-by-Step Solution

Answer

Both sides of the journal totals $156,250.

Definition of Market Value

The rate or value at which the asset can be sold or purchased in the market is known as market value. Such value is determined by market factors and forces. 

Journal Entry of the Investment Transactions

Date	Accounts and Explanation	Debit $	Credit $
6 Dec 2018	Investment in equity  $\left(2,500\times \$24\right)$	$60,000
	Cash		$60,000
23 Dec 2018	Cash  $\left(2,500\times \$1.5\right)$	$3,750
	Dividend revenue		$3,750
31 Dec 2018	Unrealized holding loss – equity investment without significant influence  $\left[2500\times \left(\$24-\$11\right)\right]$	$32,500
	Fair value adjustment		$32,500
27 Jan 2019	Cash	45,500
	Loss on Disposal	14,500
	Investment in Equity		$60,000
		$156,250	$156,250