Question

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.

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