Question

On January 4, Year 1, Larsen Corp purchased 10,000 shares of Warner Corp for $119,000 plus a broker’s fee of $2,000. Warner Corp has 50,000 common shares outstanding and it is presumed the Larsen Corp will have a significant influence over Warner Corp. During Year 1 and Year 2, Warner Corp declared and paid cash dividends of $0.85 per share. Warner Corp‘s net income was $72,000 and $67,000 for Year 1 and year 2, respectively. The January 12, Year 3 entry to record the sale of 5,000 shares of Warner Corp for $65,000 should be？

Please show the answer in details.

Write the entry

Answer 1

	% of shares taken=(10000/50000)	0.2
	Purchase Price incuding brokerage=($119000+$2000)	$ 1,21,000.00
	Less: Dividend received
	Year 1=(10000*.85)	$     -8,500.00
	Year 2=(10000*$.85)	$     -8,500.00
	Add: Net Income
	Year 1=($72000*.20)	$     14,400.00
	Year 2=($67000*.20)	$     13,400.00
	Book Value of Investment	$ 1,31,800.00
	Book Value of 5000 shares=($131800)*(5000/10000)	$     65,900.00
	Less: Sales Price	$   -65,000.00
	Loss on Sale	$           900.00
	General,Journal	Debit	Credit
	Cash	$     65,000.00
	Loss on Sale of Investment	$           900.00
	To Long Term Investment		$ 65,900.00
	(Being amount of sale of 5000 shares at a loss)