Question

On January 2, 2018, Sanborn Tobacco Inc. bought 5% of Jackson Industry’s capital stock for $96...

On January 2, 2018, Sanborn Tobacco Inc. bought 5% of Jackson Industry’s capital stock for $96 million. Jackson Industry’s net income for the year ended December 31, 2018, was $126 million. The fair value of the shares held by Sanborn was $110 million at December 31, 2018. During 2018, Jackson declared a dividend of $66 million. Required: 1. Prepare all appropriate journal entries related to the investment during 2018. 2. Assume that Sanborn sold the stock on January 2, 2019 for $122 million. Prepare the journal entries Sanborn would use to record the sale.

requirement 1)

journal entry

1) Record the purchase of Jackson Industry capital stock for $96.

2) Record Sanborn Tobacco's portion of Jackson Industry's net income of $126 million.

3) Record the cash dividend of $3.3 million

4) Record any necessary entry to adjust the fair value on December 31, 2018.

requirement 2)

journal entry

1) Record the entry to adjust to fair value on the date of sale

2) Record the sale of stock on January 2, 2019 for $122 million.

Homework Answers

Answer #1
Journal Entries:
Date Account title Debit $ Credit $
jan 2 2018 Stock available for sale 96m
Cash 96m
(being purchase of 5% Jackson stock)
NO ENTRY FOR JACKSON NET INCOME
DIVIDEND RECD.:
Cash 3.3m
Dividend revenue 3.3m
Dec 31 2018 Stock available for sale 14m
Unrealised income 14m
(being booking of fair value of investment)
2-Jan-19 Cash 122m
Unrealised income 14m
Stock available for sale 110m
Income on Stock sale 26m
(being sale of Jackson stock @ 122m)
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