Question

Sherman paid a cash dividend of $3.25 per share. At year-end, Sherman stock was selling for $37.50 per share.Prepare Blue's journal entries to record (a) the purchase of the investment, (b) the dividends received

Answer 1

Complete question:

Fairbanks Corporation purchased 400 shares of Sherman Inc. common stock as an investment in trading securities for $13,200. During the year, Sherman paid a cash dividend of $3.25 per share. At year-end, Sherman stock was selling for $34.50 per share. Prepare Fairbanks's journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment

Solution:

Given,

Total shares = 400

Trading securities = $13,200

Cash dividend = $3.25 per share

Sales price of stock = $34.50 per share

Note: The image attached shows the journal entries of all the transactions.

Dividend revenue is $400\times \ 3.25=\ 1300$

Fair value adjustment is $[(400\times \ 34.50)-\ 13,200]$

The above values are entered in the journal transaction.