Question
In: Accounting
On January 4, Year 1, Larsen Corp purchased 10,000 shares of Warner Corp for $119,000 plus...
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
Solutions
Expert Solution
| % 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) | ||||
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