Question

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

Year 1

Jan.		2		Purchased 75,000 shares of Grecco Co. common stock for $531,000 cash. Grecco has 300,000 shares of common stock outstanding, and its activities will be significantly influenced by Kodax.
Sept.		1		Grecco declared and paid a cash dividend of $1.70 per share.
Dec.		31		Grecco announced that net income for the year is $504,900.

Year 2

June		1		Grecco declared and paid a cash dividend of $3.40 per share.
Dec.		31		Grecco announced that net income for the year is $730,400.
Dec.		31		Kodax sold 9,000 shares of Grecco for $131,000 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

Date		Account titles and explanation		Debit(in $)	Credit(in $)
Year 1	Jan-02	Long term investment-Grecco		5,31,000
		Cash			5,31,000
Year 1	Sep-01	Cash(75,000*$1.70)		1,27,500
		Long term investment-Grecco			1,27,500
Year 1	Dec-31	Long term investment-Grecco($504,900*75,000/300,000)		1,26,225
		Earnings from long term investment			1,26,225
Year 2	Jun-01	Cash(75000*$3.40)		2,55,000
		Long term investment-Grecco			2,55,000
Year 2	Dec-31	Long term investment-Grecco($730,400*75,000/300,000)		1,82,600
		Earnings from long term investment			1,82,600
Year 2	Dec-31	Cash		1,31,000
		Long term investment-Grecco			54,879
		Gain on sale of investment			76,121
		Caclulation of Book value of shares sold on 31 Dec Year 2
		Original Cost		$5,31,000
		Less:Dividends Year 1		-$1,27,500
		Add:Share of Year 1 earnings		$1,26,225
		Less:Dividends Year 2		-$2,55,000
		Add:Share of Year 2 earnings		$1,82,600
		Book value at the date of sale		$4,57,325
		Book value of shares sold		$54,879
		($457,325*9,000/75,000)