Question

Listed below are a few events and transactions of Kim Company. Year 1 Jan. 2 Purchased 95,000 shares of Grey Co. common stock for $501,000 cash. Grey has 285,000 shares of common stock outstanding, and its activities will be significantly influenced by Kim. Sept. 1 Grey declared and paid a cash dividend of $2.00 per share. Dec. 31 Grey announced that net income for the year is $500,400. Year 2 June 1 Grey declared and paid a cash dividend of $2.00 per share. Dec. 31 Grey announced that net income for the year is $722,900. Dec. 31 Kim sold 10,000 shares of Grey for $126,500 cash. Prepare journal entries to record the above transactions and events of Kim Company. (Do not round intermediate calculations and round your final answers to the nearest dollar amount.)

Answer 1

Year 1

Jan. 2

Investment in Grey $501,000 (debit)

Cash $501,000 (credit)

Sept. 1

Share of Profit of Associate : Dividend Received $190,000 (debit)

Dividend Declared $190,000 (credit)

Year 2

June 1

Share of Profit of Associate : Dividend Received $190,000 (debit)

Dividend Declared $190,000 (credit)

Dec. 31

Cash $126,500 (debit)

Investment In Grey $126,500 (credit)

Step-by-step explanation:

During the first year, Kim Company purchased 33% of stocks in Grey Co. This led to Kim Company having significant influence over Grey Co. Grey Co. is known as Associate Company.

The dividend paid by an Associate is Part of Share of profit from an associate and must be presented as such in the entity books.

During the second year, when Kim Company sells 10,000 shares of Grey Co, they lost part of Investment but still have significant influence (29%) in Grey Co.The Grey Co remains an Associate of Kim Company.