Question
In: Accounting
On January 2, 2018, Sanborn Tobacco Inc. bought 5% of Jackson Industry’s capital stock for $105...
On January 2, 2018, Sanborn Tobacco Inc. bought 5% of Jackson
Industry’s capital stock for $105 million. Jackson Industry’s net
income for the year ended December 31, 2018, was $135 million. The
fair value of the shares held by Sanborn was $128 million at
December 31, 2018. During 2018, Jackson declared a dividend of $70
million.
Required:
1. Prepare all appropriate journal entries related
to the investment during 2018.
Record the purchase of Jackson Industry capital stock for $105.
Record Sanborn Tobacco's portion of Jackson Industry's net income of $135 million.
Record the dividend revenue
Record the fair value adjustment.
2. Assume that Sanborn sold the stock on January 2, 2019 for $140 million. Prepare the journal entries Sanborn would use to record the sale.
Solutions
Expert Solution
(1).
|
Accounts Titles & Explanation |
Debit (million) |
Credit (million) |
|
|
(1) |
Investment in Common Shares |
$105 |
|
|
Cash |
$105 |
||
|
(For purchase of common stock of Jackson Industry) |
|||
|
(2) |
No Journal Entry Required |
||
|
(3) |
Cash ($70 * 0.05) |
$3.50 |
|
|
Investment Revenue |
$3.50 |
||
|
(For recording investment revenue) |
|||
|
(4) |
Fair Value Adjustment |
$23 |
|
|
Unrealized holding gains or losses |
$23 |
||
|
(For recording fair value adjustment) |
(2).
|
Date |
Accounts Titles & Explanation |
Debit (million) |
Credit (million) |
|
Jan. 2, 2019 |
Cash |
$140 |
|
|
Unrealized holding gains or losses |
$23 |
||
|
Investment in Common Shares |
$128 |
||
|
Realized gains ir losses |
$35 |
||
|
(For recording sale of common stock of Jackson Industry) |
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