Question

Rowan Co. purchases 800 common shares (40%) of JBI Corp. as a long-term investment for $570,000 cash on July 1. JBI Corp. paid $10,250 in total cash dividends on November 1 and reported net income of $205,000 for the year.

(1) - (3) Prepare Rowan's entries to record the purchase of JBI shares, the receipt of its share of JBI dividends and the December 31 year-end adjustment for its share of JBI net income.

Answer 1

July 1.

Debit Credit

Investment in JBL corp. $570,000

Cash $570.000

(Purchased 800 common shares as long

term investment)

Nov 1.

Cash $4,100

Investment in JBL corp. $4,100

(To record dividend received)

Dec 31.

Investment in JBL corp. $82,000

Share in net income from JBL corp. $82,000

(To record share of net income )

Explanation:

Rowan's entries to record the purchase of JBI shares would be as follows:

July 1.

Debit Credit

Investment in JBL corp. $570,000

Cash $570.000

(Purchased 800 common shares as long

term investment)

Nov 1.

Cash $4,100

Investment in JBL corp. $4,100

(To record dividend received)

Dec 31.

Investment in JBL corp. $82,000

Share in net income from JBL corp. $82,000

(To record share of net income )

Nov 1.

Cash=10,250*40%=$4,100

Dec 31.

Investment in JBL corp=205000*40%=$82,000