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Prepare the journal entries for the following transactions for Morgan Co.

(a)Morgan Co. purchased 23,000 shares of the total of 100,000 outstanding shares of Gordon Corp. stock for $10 per share plus a $400 commission.
(b)Gordon Corp.'s total earnings for the period are $80,000.
(c)Gordon Corp. paid a total of $45,000 in cash dividends.

Respuesta :

hoangkhangpham94

Answer:

(a)

Dr Investment in Gordon Corp.               230,400

Cr Cash                                                     230,400

( to record investment in Gordon Corp.; calculated as 10 x 23,000 + 400)

(b)

Dr Investment in Gordon Corp.                18,400

Cr Share of Gordon Corp earning           18,400

( to record share of profit in Gordon Corp, calculated as % of Gordon Corp share owned x Gordon Corp's earnings = 23,000/100,000 x 80,000)

(c)

Dr Cash                                              45,000

Cr Investment in Gordon Corp.       45,000

( Record dividend receipt from Gordon Corp)

Explanation:

Further explanation, as Morgan Co. acquires 23% of Gordon Corp. ( 23,000/100,000); equity method should be applied.

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