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On January 4, Year 1, Larsen Corp purchased 10,000 shares of Warner Corp for $119,000 plus...

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Accounting

On January 4, Year 1, Larsen Corp purchased 10,000 shares ofWarner Corp for $119,000 plus a broker’s fee of $2,000. Warner Corphas 50,000 common shares outstanding and it is presumed the LarsenCorp will have a significant influence over Warner Corp. DuringYear 1 and Year 2, Warner Corp declared and paid cash dividends of$0.85 per share. Warner Corp‘s net income was $72,000 and $67,000for Year 1 and year 2, respectively. The January 12, Year 3 entryto record the sale of 5,000 shares of Warner Corp for $65,000should be?
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Answer & Explanation Solved by verified expert
3.7 Ratings (485 Votes)

% of shares taken=(10000/50000) 0.2
Purchase Price incuding brokerage=($119000+$2000) $ 1,21,000.00
Less: Dividend received
Year 1=(10000*.85) $     -8,500.00
Year 2=(10000*$.85) $     -8,500.00
Add: Net Income
Year 1=($72000*.20) $     14,400.00
Year 2=($67000*.20) $     13,400.00
Book Value of Investment $ 1,31,800.00
Book Value of 5000 shares=($131800)*(5000/10000) $     65,900.00
Less: Sales Price $   -65,000.00
Loss on Sale $           900.00
General,Journal Debit Credit
Cash $     65,000.00
Loss on Sale of Investment $           900.00
    To Long Term Investment $ 65,900.00
(Being amount of sale of 5000 shares at a loss)

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