Question

PREPARING JOURNAL ENTRIES

Part A

On January 2, 2017, Kesha Company purchased 10,000 shares of the stock of Petty Corp., and did not obtain significant influence.  The investment is intended as a long-term investment. The stock was purchased for $5 per share, and represents a 10% ownership stake. Petty Corp made $20,000 of net income in 2017, and paid dividends of $5,000 on December 15, 2017. On December 31, 2017, Petty Corp's stock was trading on the open market for $8 per share at the end of the year.  Use this information to prepare the General Journal entry(ies) for January 2 purchase and the December 15 & 31, 2017 record of income & gain/loss. If no entry is required then write "No Entry Required."

Part B

On January 1, 2017, Kesha Company purchased a significant influence shares investment in the Winehouse Company for $250,000.  This investment balance represents 40% of the equity of the Winehouse Company.  During 2017, Winehouse Company reported Net Income of $25,000 on November 15, 2017 Winehouse Company paid cash dividends of $10,000 to its shareholders. Use this information to prepare the January 1, November 15 and December 31, 2017 General Journal entry (without explanation.) If no entry is required, then write "No Entry Required."

Answer 1

Part-(A)

Date	General Jounal	Debit	Credit
02.Jan.2017	By Investment in Petty Corp	50,000
	To Bank A/c		50,000
	(Being Shares purchased in petty corp 10000*5)
15.Dec.2017	By Bank a/c	500
	To Dividend Revenue		500
	(Being dividend received for 10% stake in petty corp)
	(No entry for recording income of petty corp)
31.Dec.2017	By Investment in Petty Corp	30,000
	To Realized gain on Investments		30,000
	(being realized gain of 3 per shae (10000*3)

Part-(B)

Date	General Jounal	Debit	Credit
01.Jan.2017	By Investment in associates	250,000
	To Bank A/c		250,000
	(Being 40 % Shares of winwhouse purchased)
15.Nov.2017	By Investment in associates	10,000
	To Revenue from Investments		10,000
	(To record 40% of Winehouse Net Income)
31.Dec.2017	By Bank a/c	4,000
	To Investment in associates		4,000
	(To record dividend received from Winhouse)