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Chapter 10: 3TI (page 554)

On May 15, 2018, Mayer Co. invests \(8,000 in John, Inc. stock. John pays Mayer a \)200 dividend on November 15, 2018. Mayer sells the John stock on December 10, 2018, for $7,500. Assume the Mayer Co. does not have significant influence over John, Inc. Journalize the 2018 transactions related to Mayer’s investment in John stock.

Short Answer

Expert verified

Both sides of the journal total$16,200.

Step by step solution

01

Definition of Equity Investment

The investment done by purchasing the company’s equity shares is known as an equity investment. Equity investment might provide controlling interest or non-controlling interest.

02

Journal Entries for Recording the Investment in John Stock

Date

Accounts and Explanation

Debit $

Credit $

15 May 2018

Equity investment

$8,000

Cash

$8,000

15 Nov 2018

Cash

$200

Dividend revenue

$200

10 Dec 2018

Cash

$7,500

Loss on disposal

$500

Equity investment

$8,000

Total

$16,200

$16,200

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Most popular questions from this chapter

Accounting for debt investments

Suppose Solomon Brothers purchases $500,000 of 6% annual bonds of Morin Corporation at face value on January 1, 2018. These bonds pay interest on June 30 and December 31 each year. They mature on December 31, 2022. Solomon intends to hold the Morin bond investment until maturity.

Requirements

1. Journalize Solomon Brothers’ transactions related to the bonds for 2018.

Classifying and accounting for debt and equity investments

Jetway Corporation generated excess cash and invested in securities as follows: 2018

Jul. 2 Purchased 4,200 shares of Pogo, Inc. common stock at \(12.00 per share. Jetway plans to sell the stock within three months, when the company will need the cash for normal operations. Jetway does not have significant influence over Pogo.

Aug. 21 Received a cash dividend of \)0.80 per share on the Pogo stock investment.

Sep. 16 Sold the Pogo stock for \(13.40 per share.

Oct. 1 Purchased a Violet bond for \)20,000 at face value. Jetway classifies the investment as trading and short-term.

Dec. 31 Received a \(100 interest payment from Violet.

31 Adjusted the Violet bond to its market value of \)22,000.

Requirements

Where is the unrealized holding gain or loss associated with the trading debt investment reported?

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

2. What was the net effect of the investment on Bark’s net income for the year ended December 31, 2018?

Classifying and accounting for debt and equity investments

Jetway Corporation generated excess cash and invested in securities as follows: 2018

Jul. 2 Purchased 4,200 shares of Pogo, Inc. common stock at \(12.00 per share. Jetway plans to sell the stock within three months when the company will need the cash for normal operations. Jetway does not have significant influence over Pogo.

Aug. 21 Received a cash dividend of \)0.80 per share on the Pogo stock investment.

Sep. 16 Sold the Pogo stock for \(13.40 per share.

Oct. 1 Purchased a Violet bond for \)20,000 at face value. Jetway classifies the investment as trading and short-term.

Dec. 31 Received a \(100 interest payment from Violet.

31 Adjusted the Violet bond to its market value of \)22,000.

Requirements

Journalize the 2018 transactions. Explanations are not required.

What is comprehensive income, and what does it include?
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