Question

Treasure Co. acquired 35% of the 3,000,000 shares of common stock of Plush Co. at a cost of $7.50 per share on January 1, 2014. Plush co. declared and paid a $0.3 cash dividend per share and reported net profit of $315,000 for the year. On December 31, 2014, Treasure sold these shares at a market price of $8.70 per share.

Required:

Prepare all appropriate journal entries related to the investment during 2014.

Answer 1

Journal Entries for the above transactions are as follows:

a) Share of Plush Co. A/c Dr. $ 7,875,000

To Cash A/c $ 7,875,000

( Being 1,050,000 common stock of Plush Co. are purchased at $7.50 per share)

b) Cash A/C    Dr. $ 315,000

To Dividend Income A/c $ 315,000

( Being dividend of $0.3 per share received)

c) Cash A/c Dr. $ 9,135,0000

To Share of Plush Co. A/c $ 7,875,000

To Gain on Sale of Shares A/c $ 1,260,000

( Being 1,050,000 shares of Plush Co. sold at the rate of $ 8.70 per share)