Financial Accounting Tutorial 6:

1. Journalize the following long-term available-for-sale investment transactions of

Rivera Securities: a. Purchased 400 shares of AOL Time Warner common stock at 22 CHF per share, with the intent of holding the stock for the indefinite future b. Received cash dividend of 1 CHF per share on the AOL investment. c. At year end, adjusted the investment account to current market value of 25 CHF per share d. Sold the AOL stock for the market price of 23 CHF per share
Solution:

Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT a. Long-Term Investment (400 22).. 8,800 Cash... 8,800 b. Cash (400 1) 400 Dividend Revenue 400 c. Allowance to Adjust Investment to Market [400 (25 22)] 1,200 Unrealized Gain on Investment.. 1,200 d. Cash (400 23).. 9,200 Long-Term Investment.. 8,800 Gain on Sale of Investment.. 400 2. JCPenney Company owns equity-method investments in several companies. Suppose Penney 2,400,000 CHF to acquire a 25% investment in Thai Imports Company. Assume that Thai Imports reported net income of 640,000 CHF for the first year and declared and paid cash dividends of 420,000 CHF. Record the following in JCPenney's journal: a. Purchase of the investment b. JCPenney's proportion of Thai Import's net income c. Receipt of the cash dividends d. What is the ending balance in JCPenney's investment account?