Question

Mary Parker Company paid $15,000 to acquire 3,000 shares of ABC Corporation common stock. Mary Parker's journal entry to reocrd this transaction would include a:

a. Credit to retained earnings
b. credit common stock
c. debit to investments
d. debit to dividends

Answer 1

Mary Parker Company's purchase of 3,000 shares of ABC Corporation common stock for $15,000 is recorded with a debit to investments in the company's journal entry.

Step-by-step explanation:

debit to investments:

The transaction involving Mary Parker Company's acquisition of 3,000 shares of ABC Corporation common stock for $15,000 would include a debit to investments. This debit entry reflects the purchase of the stock as an investment, leading to an increase in assets. There would not be a credit to retained earnings, dividends, or common stock, as the transaction does not involve the distribution of earnings, issuance of new stock, or direct payment to shareholders. The journal entry would simply show the movement of cash to an investment.

When a company acquires shares of another company, it is considered an investment. In this case, Mary Parker Company is acquiring 3,000 shares of ABC Corporation common stock by paying $15,000. Since Mary Parker Company is giving out cash for the investment, it will be recorded as a debit to investments.