Question

Listed below are a few events and transactions of Kodax Company. 2017 Jan. 2 Purchased 26,600 shares of Grecco Co. common stock for $419,000 cash plus a broker’s fee of $4,100 cash. Grecco has 76,000 shares of common stock outstanding, and its policies will be significantly influenced by Kodax. Sept. 1 Grecco declared and paid a cash dividend of $2.60 per share. Dec. 31 Grecco announced that net income for the year is $503,400. 2018 June 1 Grecco declared and paid a cash dividend of $3.20 per share. Dec. 31 Grecco announced that net income for the year is $727,900. Dec. 31 Kodax sold 11,000 shares of Grecco for $375,000 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.)

Answer 1

Solution:

Journal entries to record the given transactions and events of Kodax Company.

Date	Particulars	Debit($)	Credit($)
Jan 02, 2017	Long term investment-Grecco Co A/c Dr	$423,100
	To Cash A/c ($419,000+$4,100)		$423,100
	(To record investment)
Sep 1, 2017	Cash A/c Dr (26,600*$2.60)	$69,160
	To Long term investment-Grecco Co A/c		$69,160
	(To record cash dividend of $2.60)
Dec31, 2017	Long term investment-Grecco Co A/c Dr $503,400*(26,600/76,000)	$176,190
	To Income From Long term investment A/c		$176,190
	(To record earning)
June1, 2018	Cash A/c Dr (26,600*3.20)	$85,120
	To Long term investment-Grecco Co A/c		$85,120
	(To record cash dividend of $3.20)
Dec31, 2018	Long term investment-Grecco Co A/c Dr $727,900*(26,600/76,000)	$254,765
	To To Income From Long term investment A/c		$254,765
	(To record earnings)
Dec 31, 2018	Cash A/c Dr	$375,000
	To Long term investment-Grecco Co A/c		$289,381
	To Gain on sale of investment A/c ($375,000 - $289,381)		$85,619
	(To record gain)

Working notes:

Book value at date of sale:

= 423,100 - 69,160 + 176,190 - 85,120 + 254,765

= $699,775

Book value of share sold:

= $699,775*(11,000/26,600)

= $289,381