On January 2, 2018, Sanborn Tobacco Inc. bought 5% of Jackson Industry’s capital
ID: 2549455 • Letter: O
Question
On January 2, 2018, Sanborn Tobacco Inc. bought 5% of Jackson Industry’s capital stock for $105 million. Jackson Industry’s net income for the year ended December 31, 2018, was $135 million. The fair value of the shares held by Sanborn was $128 million at December 31, 2018. During 2018, Jackson declared a dividend of $70 million.
Required:
1. Prepare all appropriate journal entries related to the investment during 2018.
Record the purchase of Jackson Industry capital stock for $105.
Record Sanborn Tobacco's portion of Jackson Industry's net income of $135 million.
Record the dividend revenue
Record the fair value adjustment.
2. Assume that Sanborn sold the stock on January 2, 2019 for $140 million. Prepare the journal entries Sanborn would use to record the sale.
Explanation / Answer
(1).
Accounts Titles & Explanation
Debit (million)
Credit (million)
(1)
Investment in Common Shares
$105
Cash
$105
(For purchase of common stock of Jackson Industry)
(2)
No Journal Entry Required
(3)
Cash ($70 * 0.05)
$3.50
Investment Revenue
$3.50
(For recording investment revenue)
(4)
Fair Value Adjustment
$23
Unrealized holding gains or losses
$23
(For recording fair value adjustment)
(2).
Date
Accounts Titles & Explanation
Debit (million)
Credit (million)
Jan. 2, 2019
Cash
$140
Unrealized holding gains or losses
$23
Investment in Common Shares
$128
Realized gains ir losses
$35
(For recording sale of common stock of Jackson Industry)
Accounts Titles & Explanation
Debit (million)
Credit (million)
(1)
Investment in Common Shares
$105
Cash
$105
(For purchase of common stock of Jackson Industry)
(2)
No Journal Entry Required
(3)
Cash ($70 * 0.05)
$3.50
Investment Revenue
$3.50
(For recording investment revenue)
(4)
Fair Value Adjustment
$23
Unrealized holding gains or losses
$23
(For recording fair value adjustment)
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