Question

Amazon Services, Inc. invests its excess cash in Nile Technologies, Inc. and acquires 6,000 shares for $62.00 per share. Amazon Services, Inc. owns less than 2% of Nile's voting stock and plans to hold the stock for two years. While preparing the journal entry to record this transaction:_______.
A. Common Stock is debited for $372,000
B. An equity account is debited for $372,000
C. Equity Investments is debited for $372,000
D. Long-term Investments is credited for $372,000

Answer 1

Answer:

Option B. Equity Investments is debited for $372,000

Explanation:

The initial journal entry to record the equity Investment will be treated same as purchase of an asset, which means the equity Investment account will be debited with the amount paid and the cash account will be credited with an equal balance.

Dr Equity Investments (6,000 * $62 per share) $372,000

Cr Cash Account                                                          $372,000