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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 9 months ago
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