Question

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

Year 1

Jan.		2		Purchased 82,000 shares of Grecco Co. common stock for $546,000 cash. Grecco has 246,000 shares of common stock outstanding, and its activities will be significantly influenced by Kodax.
Sept.		1		Grecco declared and paid a cash dividend of $1.30 per share.
Dec.		31		Grecco announced that net income for the year is $510,900.

Year 2

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 $740,400.
Dec.		31		Kodax sold 13,000 shares of Grecco for $99,500 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

Date	General Journal	Debit	Credit
Jan 02, Year 1	Long term investments - Greeco	$546,000
	Cash		$546,000
Sep 01, Year 1	Cash	$106,600
	Long term investments - Greeco		$106,600
Dec 31, Year 1	Long term investments - Greeco	$170,300
	Earnings from long term investment		$170,300
June 01, Year 2	Cash	$262,400
	Long term investments - Greeco		$262,400
Dec 31, Year 2	Long term investments - Greeco	$246,800
	Earnings from long term investment		$246,800
Dec 31, Year 2	Cash	$99,500
	Gain on sale of investment		$5,313
	Long term investments - Greeco		$94,187

Explanation:

Jan 02, Year 1

Record purchase of investment = $546,000
Long term investments - Greeco: Kodak's investments equals 33 1/3% of Greeco's stock (82,000/246,000). Kodak should use the equity method to account for its investment.

Sep 02, Year 1

Record receipt of cash dividend (82,000 * $1.3) = $106,600

Dec 31, Year 1

Record equity in investee earnings ($510,900 * 82,000/246,000) = $170,300

June 01, Year 2

Record receipt of cash dividend (82,000 * $3.2) = $262,400

Dec 31, Year 2

Record equity in investee earnings ($740,400 * 82,000/246,000) = $246,800

Dec 31, Year 2

Record sale of investment

Book value (Greeco Co. stock) at Dec 31, Year 2 = Original cost - Year 1 dividends + Share of Year 1 earnings - Year 2 dividends + Share of Year 2 earnings = $546,000 - $106,600 + $170,300 - $262,400 + $246,800 = $594,100

Book value at date of sale = $594,100

Book value of shares sold = $594,100 * (13,000/82,000) = $94,187