Question

On January 1, 2020, Correct Corporation bought a 10,000 shares of Error Corporation's $1 par value...

On January 1, 2020, Correct Corporation bought a 10,000 shares of Error Corporation's $1 par value common stock for $90,000. Correct has 200,000 shares outstanding. On December 12, 2020, Error paid a $100,000 cash dividend and Error reported net income for the year ended December 31, 2020 of $700,000. On December 31, 2020, Error's stock was trading at $10.50 per share.

1. Record the journal entry on Correct's books for the acquisition of Error stock on January 1, 2020.

2. Record the cash dividend received by Correct on December 12, 2020.

3. Record any necessary entry(ies) for Correct on December 31, 2020.

Homework Answers

Answer #1
Shares Purchased     10,000
/ Shares outstanding 200,000
Ownership 5%
1.) Date Account Titles Debit $ Credit $
January 1,2020 Investment in Error Corporation 90,000
Cash 90,000
2.) Date Account Titles Debit $ Credit $
December 12,2020 Cash    5,000
Dividend Revenue     5,000
(100,000 x 5% )
3.) Date Account Titles Debit $ Credit $
December 31,2020 Fair value Adjustment 15,000
Unrealized holding gain or loss 15,000
(10,000 x 10.50 ) - 90,000
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