Question

17-06Coronado Corporation purchased 380 shares of Sherman Inc. common stock for $12,900 (Coronado does not have significant influence). During the year, Sherman paid a cash dividend of $3.25 per share. Assume the stock is nonmarketable.Prepare Coronado’s journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.)

Answer 1

Answer:

See explanation section.

Explanation:

Description/Account

(a) Investments in Sherman Inc.  debit               $12,900

    Cash                                          credit                            $12,900

As Coronado Corporation purchased shares of Sherman Inc. common stock, it is an investment.

(b) Cash                                          debit              $1,235

         Dividend Revenue               credit                            $1,235

Calculation: Shares × cash dividend of per share.

                    380 × $3.25 = $1,235

As Sherman paid a cash dividend of $3.25 per share to its share holder, Coronado Corporation will receive the portion of the dividend.

(c) Fair Value Adjustment              debit           $0

         Unrealized Holding Gain or Loss Income credit     $0

Seance the stock is  non-marketable, the Fair Value Adjustment is not required. However, for the purpose of future transaction, I have added the journal entry.

According to the question, I Assume a zero balance in the Fair Value Adjustment account.