Ellis Transport Company acquired 1.4 million shares of stock in L&K Corporation
ID: 2561638 • Letter: E
Question
Ellis Transport Company acquired 1.4 million shares of stock in L&K Corporation at $88 per share. They are classified by Ellis as “available for sale.” Ellis sold 400,000 shares at $92, received a 10% stock dividend, and then later in the year sold another 100,000 shares at $87.
Hint: There is no entry for the stock dividend, but a new investment per share must be calculated for use later when the shares are sold.
Prepare journal entries to record these transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
Ellis Transport Company acquired 1.4 million shares of stock in L&K Corporation at $88 per share. They are classified by Ellis as “available for sale.” Ellis sold 400,000 shares at $92, received a 10% stock dividend, and then later in the year sold another 100,000 shares at $87.
Explanation / Answer
Number of shares outstanding after first sale = 1,400,000-400,000 = 1,000,000 shares
Stock dividend received : 1,000,000*.10= 100,000 shares
Total shares outstanding : 1000000+100000= 1,100,000 shares
Value of investment after first sale : [123,200,000-35,200,000]
= 88,000,000/1,100,000= $ 80 per share
**the stock dividend received reduces the cost of investment
Date Account Debit credit 1 Investment in availabe for sale securities 123,200,000 cash 123,200,000 [being investment made 1,400,000*88] 2 cash [400000*92] 36,800,000 Gain on sale of available for sale security 1,600,000 Investment in available for sale security [400000*88] 35,200,000 [Being investment sold at a gain] 3 cash [100000*87] 8,700,000 Gain on sale of available for sale security 700,000 Investment in available for sale security [100000*80] 8,000,000 [being investment sold at gain]Related Questions
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