Question

Listed below are a few events and transactions of Kodax Company.

Jan. 2 Purchased 92,000 shares of Grecco Co. common stock for $526,000 cash. Grecco has 276,000 shares of common stock outstanding, and its activities will be significantly influenced by Kodax.
Sept. 1 Grecco declared and paid a cash dividend of $1.50 per share.
Dec. 31 Grecco announced that net income for the year is $507,900. Year 2
June 1 Grecco declared and paid a cash dividend of $3.80 per share.
Dec. 31 Grecco announced that net income for the year is $735,400.
Dec. 31 Kodax sold 13,000 shares of Grecco for $96,500 cash.

Required:
Prepare journal to record the above transactions and events of kodax Company.

Answer 1

Jan. 2

Investment in Associate $526,000 (debit)

Cash $526,000 (credit)

Sept. 1

Cash $138,000 (debit)

Dividend Received $138,000 (credit)

June 1

Cash $349,600 (debit)

Dividend Received $349,600 (credit)

Dec. 31

Cash $96,500 (debit)

Investment in Associate $96,500 (credit)

Step-by-step explanation:

When Kodax Company purchased 92,000 shares of Grecco Co she had significant influence (more than 20% of shareholding in Grecco Co). We call this an Investment in an Associate.

The Investment in Associate is a Financial Asset to the Holder (Kodax Company) and an Equity Element to the Investee (Grecco Co) and should be recorded appropriately as above.