Question

On January 1, 2020, Cheyenne Company purchased 40% of Santos Corporation 465,000 outstanding shares of common stock at a total cost of $13 per share. On October 25, Santos declared and paid a cash dividend of $0.40 per share. On December 31, Santos reported a net income of $934,000 for the year and the market price of its common stock was $14 per share. Prepare all necessary journal entries for Mica company for 2020.

Answer 1

The following journal entry will be prepared to record the transactions

Date General Journal Debt($) Credit($)

Jan 1 Investment in Cheyenne Co. 2,418,000

(465,000 x 40% x $13)

Cash 2,418,000

Oct. 25 Cash (465,000 x 40% x $0.4) 74,400

Investment in Cheyenne Co. 74,400

Dec 31 Investment in Cheyenne Co. 373,600

($934,000 x 40%)

Equity income in Cheyenne Co. 373,600