Question

Geocentric Company purchased 1000 shares of Robust Company at $50 per share and incurred a brokerage fee of $100 on September 1, 2019.

A. What entry would Geocentric make to record this purchase?

B. What entry would Geocentric make if it received a $2 dollar dividend per share from Robust Company on October 1, 2019?

C What entry would Geocentric make if it sold 500 shares of Robust Company for $60 dollars per share on November 1, 2019 and incurred a brokerage fee of $50?

D. What entry would Geocentric make at the fiscal year end at December 31,2019 when the market value of the Robust shares was $75 per share?

Answer 1

Solution:

No.	Date	General Journal	Debit	Credit
A	Sept. 1,2019	Investment in Robust Company [50000+100]	$       50,100
		Cash		$       50,100
		[To record investment in equity]
B	Oct. 1, 2019	Cash [1000 shares*$2 per share]	$         2,000
		Equity Investment		$         2,000
		[To record Dividend revenue]
C	Nov. 1, 2019	Cash [(500*60)-50]	$       29,950
		Gain on sale of investments		$         4,900
		Investment in Robust Company [50100/2]		$       25,050
		[To record Dividend revenue]

No need of entry d, as carrying amount[$ 50.1] is less than market value [$ 75].

In long term investments, investments are recorded at cost rather than market value.

As no information is provided in relating to type of investments, we considered it as long term investment.