Question

on feb 1, 2015, michelle co. decides to invest excess cash of 30,000 by purchasing 1000 shares of celina, inc. stock at $30 per share. On july1,2015, celina, inc declared and paid $0.50 dividend per share. At year end, december 31, 2015, celina's market price was $23 per share. On july1, 2016, celina inc. declared and paid $0.30 dividend per share. At year-end, december 31, 2016, market price was $40 per share. The investment is categorized as a trading investment. (25%)

required:

1. prepare journal entries for:

a. feb 1, 2015

b. july 1, 2015

c. december 31, 2015

d. july1, 2016

e. dec 31, 2016

2. what was the net effect of the investment on michelle co. net income for the year ended dec 31, 2015?

Answer 1

1.

01/02/2015

Equity Shares in Celina Inc Dr. 30,000

Bank Cr. 30,000

(Being purchase 1000 shares in Celina inc @ 30 each)  

01/07/2015

Bank Dr. 500

Dividend Received Dr. 500

(Being dividend received for Celina inc for 1000 shares @.50/share)

31/12/2015

Unrealized Gains & Losses Trading securities Dr. 7000 (1000*(30-23))

Equity Shares in Celina Inc Cr 7000 (1000*(30-23))

(Being the adjusted the trading securities to market value)

01/07/016

Bank Dr. 300

Dividend Received Dr. 300

(Being dividend received for Celina inc for 1000 shares @.30/share)

31/12/2016

Equity Shares in Celina Inc Dr 17000 (1000*(40-23))

Unrealized Gains & Losses Trading securities Cr 17000 (1000*(40-23))

(Being the adjusted the trading securities to market value)

2.  

Net effect on Net income for the year 2015:-

Dividend Received - 500

Unrealized Gains & Losses Trading securities - -7000

Decrease in Net income = 6500 (Decrease in Net Income)