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Journal Entries / Investment Account

1. Prepare the journal entries for the following transactions for Guang Corporation for 20x1 and 20x2. Please provide

Provide all explanations.

20x1

Aug. 13 Purchased 1,000 share of Nestor Corporation stock for $30,000.

These shares were purchased primarily for trading purposes.

Oct. 5 Purchased 4,000 shares of Sapsara Corporation stock for $68,000.

These shares were purchased primarily for trading purposes.

Nov. 1 Invested $98,000 in l20-day U.S. Treasury bills that have a maturity

value of $100,000.

Dec. 31 The market value of the Nestor Corporation share is $31,000, and

the market value of the Sapsara

Corporation stock is $63,000. A year-end adjustment is made.

31 A year-end adjustment is made for accrued interest on the Treasury bills.

2002

Mar. 1 Received maturity value of U.S. Treasury bills in cash.

Apr. 14 Sold all 1,000 shares of Nestor Corporation stock for $30,800.

Sept. 22 Received dividends of $1 per share from Sapsara Corporation.

Dec. 31 The market value of the Sapsara Corporation shares is $70,000. A year-end adjustment is made.

2.Knabe Corporation purchased 3,000 shares of Duncan Corporation common stock for $80 per share on January 1, 20x7, as a long-term investment. Duncan reported net income of $70,000 and $90,000 for 20x7 and 20x8, respectively, and paid dividends of $25,000 and $30,000 during 20x7 and 20x8, respectively. Duncan has a total of 10,000 shares outstanding. Compute the following amounts.

a. Amount of investment income recognized by Knabe Corporation during 20x7

b. Balance of Investment in Duncan Corporation account at end of 20x7

c. Amount of investment income recognized by Knabe Corporation during 20x8

d. Balance of Investment in Duncan Corporation account at end of 20x8

Solution Preview

20x1

Aug. 13 Purchased 1,000 share of Nestor Corporation stock for $30,000.
These shares were purchased primarily for trading purposes.

These shares are purchased for trading purposes and so would be classified as Trading Securities and the debit would be to Short Term Investments. The journal entry would be

Short Term Investment Dr 30,000
Cash Cr 30,000

Purchase of 1,000 shares of Nestor Corporation as Trading Securities

Oct. 5 Purchased 4,000 shares of Sapsara Corporation stock for $68,000.

These shares were purchased primarily for trading purposes.

This is done the same way as these are also trading securities. The journal entry is
Short Term Investment Dr 68,000
Cash Cr 68,000

Purchase of 4,000 shares of Sapsara Corporation as Trading Securities

Nov. 1 Invested $98,000 in l20-day U.S. Treasury bills that have a maturity

value of $100,000.

This is also a short term investment since it matures in 120 days. The journal entry is
Short Term Investment Dr 98,000
Cash Cr 98,000

Investment in 120 day U.S. Treasury Bill

Dec. 31 The market value of the Nestor Corporation share is $31,000, and

the market value of the Sapsara

Corporation stock is $63,000. A year-end adjustment is made.

Since the investments are ...

Solution Summary

The solution explains two questions - journal entries for the given transactions and the change in investment account balance under equity method of accounting.

$2.19