Question

On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee. This purchase represents less than 20% ownership of the Lucas Company. On August 22, Lucas paid a $0.42 dividend per share. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee.

Required:
Prepare the journal entries for the original purchase, dividend, and sale. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

Answer:

Following journal entries for the original purchase, dividend, and sales are:

February 12,

Cost for Investment is Recorded [(6000 × 22) + 240] = 132240

Debit: Investment in Equity = 132240

Credit: Cash =132240

August 22,

Dividend Received (6000 × 0.42) = 2520

Debit: Cash = 2520

Credit: Dividend Income = 2520

November 10,

Debit: Cash [(4000 × 28) - 160) = 111840  

Credit: Investment in Equity [132240 × 4000 / 6000] = 88160

Credit: Gain on Sale of Investment = 23680