Question

On January 23, 10,000 shares of Tolle Company are acquired at a price of $30 per share plus a $100 brokerage commission. On April 12, a $0.50-per-share dividend was received on the Tolle Company stock. On June 10, 4,000 shares of the Tolle Company stock were sold for $34 per share less a $100 brokerage commission. Journalize the transaction.

Answer 1

Answer:

January 23rd

Dr Investment in Tolle                 300,100

Cr Cash                                        300,100

(to record the acquired of 10,000 Tolle's shares at $30 each and a brokerage cost of $100)

April 12th

Dr Cash                                 5,000

Cr Dividend Revenue          5,000

(to record dividend revenue from 10,00 Tolle's shares at $0.5 each)

June 10th

Dr Cash                                           135,900

Cr Investment on Tolle                 120,040

Cr Gain on investment disposal   15,860

(to record the sales of 4,000 Tolle's shares at $34 plus $110 commission fees incurred).

Explanation:

All the explanation is given at the end of each transaction. Further explanation as below:

Given there is no information mentioned whether the share acquired is fro 20% to above and the partial disposal of the investment comes quite near to the time of first acquire; we apply the Cost Method for accounting these transactions.

In the June 10th transaction, we have:

- The actual selling price per share = (Selling price x share sold - Brokerage commission) / share sold = ( 34 x 4,000 - 100) / 4,000 = $33.975;

- The cost of share sold per share = ( Purchasing price x share purchase - Brokerage commission)/ share purchased = ( 30 x 10,000 + 100) / 10,000 = $30.01

=> Cost of share recorded ( Cr Investment account) = 30.01 x 4,000 = 120,040;

=> Gain on investment disposal = ( 33.975 - 30.01) x 4,000 = 15,860.

=> Cash receipt = 4,000 x 34 - 100 = $135,900.