Question

On January 2, 2018, Sanborn Tobacco Inc. bought 10% of Jackson Industry’s capital stock for $104...

On January 2, 2018, Sanborn Tobacco Inc. bought 10% of Jackson Industry’s capital stock for $104 million. Jackson Industry’s net income for the year ended December 31, 2018, was $134 million. The fair value of the shares held by Sanborn was $126 million at December 31, 2018. During 2018, Jackson declared a dividend of $74 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 $138 million. Prepare the journal entries Sanborn would use to record the sale.

Homework Answers

Answer #1

1)

Date Account Debit credit
Jan 2 2018 Investment in Trading securities 104
cash 104
31 dec 2018 Dividend receivable 7.4
Dividend revenue 7.4
[being dividend to be received 74* .10]
31 dec 2018 Investment in Trading securities 22
Unrealized gain on trading security 22
[being unrealized gain recorded 126-104]

2)

Date Account debit credit
2 jan 2019 cash 138
Realized Gain on sale of trading security 12
Investment in Trading securities 126
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