Question

On March 15, 2022, Boston Company acquired 6,000 shares of Richfield Corporation common stock at $44 per share as a long-term investment. Richfield has 60,000 shares of outstanding voting common stock. Boston does not own any other stocks. Boston Company made an irrevocable option to measure the equity investment as fair value through other comprehensive income. The following additional events occurred during the fiscal year ended December 31, 2022:

Dec.1 Boston received a cash dividend of $2.60 per share from Richfield Corporation.
Dec31 Richfield Corporation announced earnings for the year of $150,000.
Dec31 Richfield common stock had a closing market price of $41 per share.
prepare 1) journal entries. 2) Statement of comprehensive income 3) Balance sheet

Answer 1

To prepare the journal entries for the transactions, Boston Company debits Investment in Richfield Corporation and credits Cash for the acquisition of 6,000 shares. For the cash dividend, Boston debits Cash and credits Dividend Income. The earnings announcement and market price at year-end do not have any journal entries. The dividend income is included in the statement of comprehensive income, and the investment in Richfield Corporation is reported on the balance sheet.

Step-by-step explanation:

To prepare the journal entries for the events that occurred during the fiscal year, we must analyze each transaction:

1. On March 15, 2022, Boston Company acquired 6,000 shares of Richfield Corporation common stock:

DR: Investment in Richfield Corporation (6,000 shares * $44) - $264,000

CR: Cash - $264,000

1. On December 1, Boston received a cash dividend of $2.60 per share from Richfield Corporation:

DR: Cash (6,000 shares * $2.60) - $15,600

CR: Dividend Income - $15,600

1. On December 31, Richfield Corporation announced earnings for the year of $150,000:

There are no journal entries required for this event as it does not involve any transaction or exchange of assets.

1. On December 31, Richfield common stock had a closing market price of $41 per share:

There are no journal entries required for this event as it does not involve any transaction or exchange of assets.

To prepare the statement of comprehensive income, we would include the dividend income received from Richfield Corporation as part of the other income section.

To prepare the balance sheet, we would report the investment in Richfield Corporation under long-term investments on the asset side.