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Chapter 12: 6BE (page 610)

Use the information from BE17-5 but assume the stock is nonmarketable. Prepare Fairbanks’ journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment, if any.

Short Answer

Expert verified

a) The amount debited to equity investment is $13,200.b)

b) The amount of dividend received is $1,300.

c) The unrealized gain on the investment is $600.

Step by step solution

01

Step-by-Step SolutionStep 1: Definition of common stock

Common stock is the stock in which the dividend amount is not fixed. The amount of dividend fluctuates.

02

 Journal entry of the purchase of the investment 

Date

Description

Debit

Credit

A.

Equity Investment

$13,200

Cash

$13,200

Being entry to record the purchase of common stock

03

Journal entry for the interest received 

Date

Description

Debit

Credit

B

Cash

$1,300

Investment Revenue

$1,300

Being entry of dividend received

04

Adjustment entry for the fair value  

Date

Description

Debit

Credit

C

Unrealized Gain- Income

$600

Fair value adjustment

$600

Being fair value adjustment common stock

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