On April 5, 2004, Meyers company buys 5,000 shares of investee company for $12 p

Question

On April 5, 2004, Meyers company buys 5,000 shares of investee company for $12 per share and pays commissions of $1,800. this represents 8% of the shares of investee and the investment is classified as available-for-sale. during 2004, myers receives $1 per share in dividends and investee earns $35,000. On december 31, 2004, the investee stock has a fair value of $15 per share. On February 3, 2005, the investment is sold for $16 per share less commissions of $2,000. What journal entry will myers make on Febuary 3, when the investment is sold.

Explanation / Answer

Workings:

Cost of available for sale investment = (5000 x $12) + $1800 = $61800

Fair value on December 31, 2004 = 5000 x $15 = $75000

Unrealized gain on available for sale securities + $75000 - $61800 = $13200

Date Accounts Debit Credit Feb. 3, 2005 Cash [(5000 x $16) - $2000] 78000 Unrealized gain on available for sale investment 13200 Available for sale investment (5000 x $15) 75000 Realized gain on available for sale investment 16200 (To record sale of available for sale investments)

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