Question

Amazon Services, Inc. invests its excess cash in Nile Technologies, Inc. and acquires 6000 shares for $61.75 per share. Amazon Services, Inc. owns less than 2% of Nile's voting stock and plans to hold the stock for two years. While preparing the journal entry to record this transaction, ________.

A) Equity Investments is debited for $370,500
B) Common Stock is debited for $370,500
C) Long-term Investments is credited for $370,500
D) An equity account is debited for $370,500

Answer 1

Option A is correct,equity Investments is debited for $370,500

Step-by-step explanation:

The amount of money spent acquiring the 2% stake in Nile Technologies Inc is computed thus:

Equity investments=number of shares*share price

number of shares bought is 6000

share price is $61.75

Equity investments=6000*$61.75

=$370,500

Hence the correct option is A,equity investments is to be debited with $370,500 and the cash account credited with same amount.

Option B is wrong because the company bought shares and did not issue common stock.

Option D is also wrong because the amount invested denoted equity investment not just equity

Answer 2

Equity Investments is debited for $370,500

Step-by-step explanation:

Amazon services is investing in Nile Technologies by buying its shares. This is an investment activity that involves buying shares to earn income for Amazon services.

The amount of shares bought is 6,000 at $61.75 per share.

Therefore the amount spent in buying shares is 61.75 * 6,000= $370,500

Since this is an ourltflow of cash or will involve a debit to Equity Investments for $370,500.