Question

Marley Investments, Inc. purchased 45% of the common stock of Beige Corporation on January 1, 2019, Beige Corporation reports a net income of $700,000 for the 2019 year.
Which of the following is the correct journal entry?
A. Equity Investments-Beige Corporation 315,000
Revenue from Investments 315,000
B. Revenue from Investments 315,000
Cash 315,000
C. Revenue from Investments 315,000
Cash 315,000
D. Revenue from Investments 315,000
Equity Investments-Beige Corporation 315,000

Answer 1

Answer:

A.

Debit Equity Investments-Beige Corporation 315,000

Credit Revenue from Investments 315,000

Explanation:

In the given scenario Marley Investment is purchasing 45% of common stock of Beige Corporation

Revenue for the year is $700,000

So the cost of purchase will be 0.45 * 700,000 = $315,000

Since Marley Investment is making an investment in Beige shares, it will debit it's Equity Investment for this amount ($315,000)

Equity investment are costs incurred when a business purchases securities.

After purchase of the shares the revenue can now be recognised by crediting the Revenue from Investment account.

Marley Investment is now a stakeholder in Beige Corporation