On January 1, 2015, BeWell Company purchased 10% of common stock of DoingWell Co

Question

On January 1, 2015, BeWell Company purchased 10% of common stock of DoingWell Co for $450,000 and classified it as Available for Sale securities. BeWell does not have significant influence on Doingwell Company. DoingWell reported net income of $27,000 for the year and paid dividends of $9,000. On Dec 31, 2015 the Fair Value of this investment was $420,000

Required:

Prepare the appropriate journal entries on Jan 1, 2015 and December 31, 2015 to record the above transactions including year end adjustment entry.

Explanation / Answer

Journal entry :

Date accounts & explanation debit credit Jan 1,2015 Investment in DoingWell Co 450000 Cash 450000 (To record investment in stock) Dec 31,2015 Cash (9000*10%) 900 Dividend revenue 900 (To record dividend) Dec 31,2015 Unrealized gain or loss on available for sale securities 30000 Investment in DoingWll co 30000 (To record adjusting entry on fair value)

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