Question

Johnson Inc. had the following transactions for January:

1. Purchased marketable securities in Smith Company for $100,000 cash.

2. Purchased 1,000 shares of Parker Co. for $55,000 as a long term investment.  Parker has 10,000 outstanding shares issued and outstanding).

3. Purchased 10,000 shares of Drew Co. for $176,000 as a long term investment. Drew had 40,000 shares issued and outstanding.

Johnson Inc. received the following dividends:

4. $1.50 per share from Parker Co.

5. $3.00 per share from Drew Co.

Additional transactions include:

6. Parker Co. reported a net income of $127,000, and Drew Co. reported a net income of $600,000.

7. After dividends were received, we sold the 1,000 shares of Parker Co. for $60,000 cash.

Instructions: Prepare the journal entries to record the above transactions. Remember to use the space bar to indent the credits. Number the journal entries as indicated abov

Answer 1

Solution :

Journal Entries - Johnson Inc.
Event	Particulars	Debit	Credit
1	Investment in Smith Company Dr	$100,000.00
	To Cash		$100,000.00
	(To record investment in marketable securities)
2	Investment in Parker Co. Dr	$55,000.00
	To Cash		$55,000.00
	(To record investment in parker co)
3	Investment in Drew Co. Dr	$176,000.00
	To Cash		$176,000.00
	(To record investment in Drew Co. and acquired significant influence)
4	Cash Dr	$1,500.00
	To Dividend Revenue (1000*$1.50)		$1,500.00
	(To record dividend received from Parker Co)
5	Cash Dr (10000*$3)	$30,000.00
	To Investment in Drew Co.		$30,000.00
	(To record dividend received from Drew Co)
6	Investment in Drew Co. Dr	$150,000.00
	To Investment Income ($600,000*25%)		$150,000.00
	(To record share of income in drew co)
7	Cash Dr	$60,000.00
	To Investment in Parker Co.		$55,000.00
	To Gain on sale of investment		$5,000.00
	(To record sale of investment in parker co)