Question

Perry Investments bought 2,000 shares of Able, Inc. common stock on January 1, 20X1, for $20,000 and 2,000 shares of Baker, Inc. common stock on July 1, 20X1 for $24,000. Baker paid $2,400 of previously declared dividends to Perry on December 31, 20X1. At the end of 20X1, the fair value of the Able stock was $18,000 and the fair value of the Baker stock was $28,000. The stocks were purchased for short-term speculation prior to the effective date of the change in accounting rules for equity investments. Perry owns 10% of each company. Perry should record the receipt of the Baker dividend as

Answer 1

Answer:

Debit Cash $2,400: Credit Dividends receivable $2,400

Explanation:

Date               Account Titles and Explanation     Debit    Credit

31 Dec 20X1   Cash                                                $2,400

                               Dividend receivables                            $2,400

                       (Record of the receipt of the Baker dividend)