Question

On January 2, 2018, RF Company purchased 14,000 shares of the stock of Zebra Company, and did not obtain significant influence.  The investment is intended as a long-term investment.  The stock was purchased for $12 per share, and represents a 10% ownership stake. Zebra Company made $55,000 of net income in 2018, and paid dividends of 50 cents per share on December 15, 2018.  On December 31, 2018, Zebra Company's stock was trading on the open market for $15 per share at the end of the year.  Use this information to prepare the General Journal entry(ies) (without explanation) for January 2 purchase and the December 15 & 31, 2018 record of income & gain/loss. If no entry is required then write "No Entry Required."

Answer 1

In the books of RF Company

Journal Entry

Date Particulars Dr.($) Cr.($)

January 2,2018 Investment A/c Dr.    168,000

To Bank    168,000

Decemcer15,2018 Bank A/c Dr. 84,000

To Dividend A/c 84,000

December31,2018 Investment A/c Dr. 42,000

To Investment gain A/c    42,000

December31,2018  Investment gain A/c Dr. 42,000

To OCI A/c    42,000

December31,2018 OCI A/c Dr. 42,000

To Investment reserve A/c 42,000

In the books of Zebra Company

Journal Entry

Date Particulars    Dr.($) Cr.($)

January 2,2018 Bank A/c Dr. 168,000

To Share stock A/c 168,000

Decemcer15,2018 Retained Earnings A/c Dr. 84,000

To Dividend Payable A/c    84,000

Decemcer15,2018 Dividend Payable A/c Dr. 84,000

To Bank A/c 84,000

Decemcer15,2018 Profit and loss A/c Dr. 55,000

To Retained Earnings A/c 55,000

December31,2018 No Entry Required