Question

blanton corporation purchased 15% of the outstanding shares of common stock of worton corporation as a long-term investment. subsequently, worton corporation reported net income and declared and paid cash dividends. what journal entry would blanton corporation use to record the dividends it receives?

Answer 1

Blanton Corporation will record the cash dividends it receives from its investment in Worton Corporation by debiting the Cash account and crediting the Dividend Revenue or Investment Revenue account for the amount received, which corresponds to 15% of the total dividends paid.

Step-by-step explanation:

The question deals with how Blanton Corporation should record the dividends it receives from Worton Corporation, in which it owns 15% of the outstanding shares. When a corporation receives dividends from an investment in another company, the journal entry typically debits Cash and credits Dividend Revenue (or Investment Revenue). The specific journal entry Blanton Corporation would use to record the cash dividends received from Worton Corporation is:

• Debit Cash (for the amount received)
• Credit Dividend Revenue or Investment Revenue (for the amount received)

This entry increases Blanton Corporation's cash account and recognizes income in the form of dividends, proportional to the company's 15% share of Worton Corporation's distributed profits. The amount of the dividend to be recorded would be 15% of the total dividends paid by Worton Corporation.

Answer 2

Blanton Corporation records dividends received from Worton Corporation by debiting Cash and crediting Dividend Revenue or Investment Revenue for the proportionate amount related to its 15% ownership.

The student asks how to record the dividends received from a long-term investment.

When Blanton Corporation receives dividends from its investment in Worton Corporation, where Blanton owns 15% of Worton's outstanding shares, the journal entry to record the dividend receipt would typically be a debit to the Cash account and a credit to the Dividend Revenue account or Investment Revenue account.

The amount recorded would be the percentage of the dividend paid by Worton Corporation that corresponds to the 15% ownership stake of Blanton Corporation.