Question

On March 14, Apple Corporation purchased 6,000 shares of Pear Inc. for $25 per share. There is no readily determinable fair value of Pear. On June 30, Pear declared an annual dividend of $0.40 per share. On August 14, Apple sold 4,000 shares of Pear for $29 per share less a brokerage fee of $225. The journal entry at the date of sale would include:__________.
a) a credit to gain on the sale of investments for $15,775.
b) a credit to gain on the sale of investments for $16,000.
c) a credit to gain on the sale of investments for $24,000.
d) a credit to gain on the sale of investments for $18,400.

Answer 1

Answer:

a) a credit to gain on the sale of investments for $15,775

Explanation:

The journal entry on the date of purchase of such shares in the books of Apple would be

Investments A/C                                            Dr. 150,000

    To Cash A/C                                                                   150,000

(Being investments purchased for cash)

On the date of receipt of dividend:

Cash A/C (0.40 × 6000)                                     Dr. 2400

    To Dividend Income                                                        2400

(Being dividend received recorded)

Cash A/C (4000 × 29 - 225)                                          Dr. 115,775

    To Investments A/C (4000 shares × 25)                                   100,000

    To Gain on sale of Investments                                                   15,775  

(Being investments sold at a profit recorded)