Answer:
(a) Debit Equity Investments for $11,900; and Credit Cash for $11,900.
(b) Debit Cash for $1,170; and Credit Dividend Revenue for $1,170.
(c) Debit Fair Value Adjustment for $1,600; and Unrealized Holding Gain or Loss - Income for $1,600.
Explanation:
(a) Journal entries to record the purchase of the investment
The journal entries will look as follows:
<u>Accounts Title and Description Debit ($) Credit ($) </u>
Equity Investments 11,900
Cash 11,900
<em><u>(To record the purchase of the investment.) </u></em>
(b) Journal entries to record the dividends received
The journal entries will look as follows:
<u>Accounts Title and Description Debit ($) Credit ($) </u>
Cash (w.1) 1,170
Dividend Revenue 1,170
<em><u>(To record the dividends received.) </u></em>
(c) Journal entries to record the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.
The journal entries will look as follows:
<u>Accounts Title and Description Debit ($) Credit ($) </u>
Fair Value Adjustment (w.2) 1,600
Unrealized Holding Gain or Loss - Income 1,600
<em><u>(To record the fair value adjustment.) </u></em>
<u>Workings:</u>
w.1: Cash = Dividend received = Number of shares * Cash dividend per share = 360 * $3.25 = $1,170
w.2: Fair Value Adjustment = Fair value - Common stock purchase cost = (Number of shares * Selling price per share) - Common stock purchase cost = (360 * $37.50) - $11,900 = $1,600
