Asked by Margot Rochester on May 28, 2024
Verified
Rosco Company purchased 35000 shares of common stock of Paxton Corporation as a long-term investment for $900000. During the year Paxton Corporation reported net income of $300000 and paid dividends of $100000.
Instructions
(a) Assuming that the 35000 shares represent a 10% interest in Paxton Corporation:
1. Prepare the journal entry to record the investment in Paxton stock.
2. Prepare any entries that Rosco Company should make in accounting for its investment in Paxton stock during the year.
3. What is the balance of the Stock Investments account on Rosco Company's books at the end of the year?
(b) Repeat requirement (a) above except assume that the 35000 shares represent a 20% interest in Paxton Corporation.
Long-Term Investment
A long-term investment is an account on the asset side of a company's balance sheet that represents the company's investments, including stocks, bonds, real estate, and cash, held for more than one year.
Net Income
The total profit or loss of a company after all revenues, expenses, taxes, and costs have been subtracted from total revenue.
Dividends
Profit distributions by a corporation to its shareholders, usually as an earnings sharing.
- Familiarize oneself with the accounting practices and journal entry requirements for investing in equity and debt.
- Make a distinction between the use of equity and cost methods in the financial recording of investments.
- Identify the income statement and balance sheet presentation of investment activities and their impacts.
Verified Answer
Learning Objectives
- Familiarize oneself with the accounting practices and journal entry requirements for investing in equity and debt.
- Make a distinction between the use of equity and cost methods in the financial recording of investments.
- Identify the income statement and balance sheet presentation of investment activities and their impacts.
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