Brief Exercise 175 Larkspur Corporation purchased 400 shares

Brief Exercise 17-5 Larkspur Corporation purchased 400 shares of Sherman Inc. common stock for $14,100 (Larkspur does not have significant influence). During the year, Sherman paid a cash dividend of $3.25 per share. At year-end, Sherman stock was selling for $35.50 per share. Prepare Larkspur\' journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) (Credit account titles are automatically Indented when amount is entered. Do not indent manually. If no entry is required, select \"No Entry\" for the account titles and enter O for the amounts.) No. Account Titles and Explanation Debit Credit

Solution

1 No. Account Tittle and Explaination Debit Credit (a) Equity Investments (Trading) $ 14,100 Cash $ 14,100 (b) Cash $   1,300 Dividend Revenue $   1,300 (400 X $3.25) (c) Fair Value Adjustment (available for sale) $       100 Unrealized holding gain or loss - Equity $       100 [(400 X $35.50) - $14,100] 2 No. Account Tittle and Explaination Debit Credit Fair Value Adjustment (available for sale) $       270 Unrealized holding gain or loss - Equity $       270 Workings: Fair Value Adjustment (available for sale) Balance = $       230 Adjustment (Balancing Figure) $       270 Balance ($4,800 - $4,300) $       500