8. Exercise 15-12 Securities transactions; equity method LO P4 Listed below are a few events and...

8. Exercise 15-12 Securities transactions; equity method LO P4

Listed below are a few events and transactions of Kodax Company.

2017

Jan.	2	Purchased 24,000 shares of Grecco Co. common stock for $412,000 cash plus a broker’s fee of $3,400 cash. Grecco has 100,000 shares of common stock outstanding, and its policies will be significantly influenced by Kodax.
Sept.	1	Grecco declared and paid a cash dividend of $1.90 per share.
Dec.	31	Grecco announced that net income for the year is $492,900.

2018

June	1	Grecco declared and paid a cash dividend of $2.50 per share.
Dec.	31	Grecco announced that net income for the year is $710,400.
Dec.	31	Kodax sold 12,000 shares of Grecco for $340,000 cash.

Prepare journal entries to record the above transactions and events of Kodax Company. (Do not round intermediate calculations and round your final answers to the nearest dollar amount.)

Solutions

Expert Solution

No:	Description	Debit $`	Credit $
2017
Jan	Longterm investments—Grecco	415400
	Cash (412000+3400)		415400

Sep	Cash (24000*1.90)	45600
	Longterm investments—Grecco		45600

Dec.	Longterm investments—Grecco	118296
	Earnings from longterm investment		118296
	(492900*24000/100,000)

2018
June	Cash (24000x2.50)	60000
	Longterm investments—Grecco		60000

Dec.	Longterm investments—Grecco	170496
	Earnings from longterm investment		170496
	(710,400*24000/10000)

Dec.	Cash	340,000
	Gain on sale of investment		40,704
	Longterm investments—Grecco		299296

Working notes for the above answer is as under

Record sale of investment
original cost	415400
less 2017 dividends	-45600
add 2017 earnings	118296
less 2018 dividends	-60000
add 2018 earnings	170496
book value at date of sale	598592

Book value of share sold 598592/24000*12000	299,296

ekkarill92 answered 2 months ago

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