Question

Kingbird Corporation purchased 380 shares of Sherman Inc. common stock for $12,900 (Kingbird does not have significant influence). During the year, Sherman paid a cash dividend of $3.25 per share. At year-end, Sherman stock was selling for $37.50 per share.

Prepare Kingbird's journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.	Account Titles and Explanation	Debit	Credit
(a)	enter an account title to record the purchase of the investment	enter a debit amount	enter a credit amount
	enter an account title to record the purchase of the investment	enter a debit amount	enter a credit amount
(b)	enter an account title to record the dividends received	enter a debit amount	enter a credit amount
	enter an account title to record the dividends received	enter a debit amount	enter a credit amount
(c)	enter an account title to record the fair value adjustment	enter a debit amount	enter a credit amount
	enter an account title to record the fair value adjustment	enter a debit amount	enter a credit amount

Answer 1

Journal Entries to Record the Transactions

Date	Account Title and Explanation	Debit	Credit
	Common stock	$12,900
	Cash		$12,900
	(Common stock 380 shares purchase for cash $12,900 )
	Bank	$1,235
	Dividend Received		$1,235
	(As dividend received from the company 380 shares @ $3.25)
	Bank	$14,250
	Common Stock		$14,250
	(As common stock sold at the year end by the company 380 share @ $37.50)

Working:

-Purchase of the common stock by the company

-Received the dividend from the company

-Common stock sold for $37.50 rate which is more than purchase price