Answer:
Explanation:
The journal entries are shown below:
1. Investment in shares of Edwards Co A/c Dr $600,120
To Cash A/c $600,120
(Being the purchase of stock is made)
The investment is computed below:
= Number of shares acquired × par value of common stock + commission charges
= 12,000 shares × $50 + $120
= $600,120
2. Cash A/c Dr $16,800
To Dividend A/c $16,800
(Being dividend received is recorded)
The receipt of dividend is shown below:
= Number of shares × cash dividend per share
= 12,000 shares × $1.40
= $16,800
3. Cash A/c Dr $247,900
To Profit on sale $47,860
To Investment in shares of Edwards Co A/c $200,040
(Being sale of shares is recorded and the remaining amount is credited to the profit)
The computation of this above entry is shown below:
Cash Account = Number of shares sold × par value of common stock - commission charges
= $4,000 × $62 - $100
= $247,900
Profit on sale = (Purchase of stock ÷ Number of shares acquired) × Number of shares sold
= ($600,120 ÷ 12,000) shares × 4,000 shares
= $200,040
