On January 2, 2016, Alpha Company purchased 25,000 shares of Bravo Company stock
ID: 2425705 • Letter: O
Question
On January 2, 2016, Alpha Company purchased 25,000 shares of Bravo Company stock on the open market for $50 per share as a long-term investment. On both June 15 and December 15, Bravo Company paid $50,000 in dividends for a total annual dividend of $100,000. On December 31, Bravo Company reported net income of $400,000 and the stock had a market value of $75 per share. Both Alpha and Bravo operate on a calendar year.
Part A – Assume that at all times during the year there were 250,000 shares of Bravo Company stock outstanding.
Record the journal entries for the purchase of the stock, the dividends, and the reporting of income at year end on Alpha Company books.
State what the year-end value of the stock investment account is on the Alpha Company books.
Part B – Assume that at all times during the year there were 100,000 shares of Bravo Company stock outstanding.
Record the journal entries for the purchase of the stock, the dividends, and the reporting of income at year end on Alpha Company books.
State what the year-end value of the stock investment account is on the Alpha Company books.
ACCT 221 Quiz # 1
ANSWER SHEET FOR PROBLEM 2
PROBLEM 2, PART A
DATE
ACCOUNT TITLE
DEBIT
CREDIT
The Stock investment account had a ____________ balance of $_____________ at year end.
(debit or credit balance?)
PROBLEM 2, PART A
DATE
ACCOUNT TITLE
DEBIT
CREDIT
The Stock investment account had a ____________ balance of $_____________ at year end.
(debit or credit balance?)
DATE
ACCOUNT TITLE
DEBIT
CREDIT
Explanation / Answer
in the books of Alpha company 25,000 /250,000 = 10% acquired hence availale for sale securities
Credit balance of ( 25,000 *50 = 1,250,000)
reported at market value 1,875,000
Second
25,000/100,000 shares = 25% hence use equity method
balance 1,250,000 + 100,000- 25,000 = 1,325,000
market rate = 25,000*75 = 1,875,000
hence should be reported at 1,875,000
Date Description Debit Credit Jan 2 2016 Available for sale securities $1,250,000 To cash $1,250,000 (25000*50) june 15 Cash(50000@10%) $5,000 To dividend income 5,000Related Questions
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