Question

Show Me How On February 22, Stewart Corporation acquired 12,000 shares of the 400,000 outstanding shares of Edwards Co. common stock at $50 plus commission charges of $120. On June 1, a cash dividend of $1.40 per share was received. On November 12, 4,000 shares were sold at $62 less commission charges of $100.Using the cost method, journalize the entries for (a) the purchase of stock, (b) the receipt of dividends, and (c) the sale of 4,000 shares.

Answer 1

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