Q3SE_1 - Horngren'S Financial And Managerial Accounting

Question

Accounting for equity investments

On January 1, 2018, Bark Company invests \(10,000 in Roots, Inc. stock. Roots pays Bark a \)400 dividend on August 1, 2018. Bark sells the Roots’s stock on August 31, 2018, for $10,450. Assume the investment is categorized as a short-term equity investment and Bark Company does not have significant influence over Roots, Inc.

Requirements 

1. Journalize the transactions for Bark’s investment in Roots’s stock.

Step-by-Step Solution

Answer

Both sides of the journal totals $20,850.

Step 1: Definition of Dividend Revenue

The revenue generated through dividends provided by the company to its shareholders is known as dividend revenue.  

Step 2: Journal Entry for Transaction of Investment

Date	Accounts and Explanation	Debit $	Credit $
1 Jan 2018	Equity Investment	$10,000
	Cash		$10,000
1 Aug 2018	Cash	$400
	Dividend revenue		$400
31 Aug 2018	Cash	$10,450
	Equity investment		$10,000
	Gain on sale of equity investment		$450
		$20,850	$20,850