Question

Accounting for equity investments

Captain Investments completed the following investment transactions during 2018:

Jan. 14 Purchased 200 shares of Velcon stock, paying \(53 per share. The investment represents 4% ownership in Velcon’s voting stock. Captain does not have significant influence over Velcon. Captain intends to hold the investment for the indefinite future.

Aug. 22 Received a cash dividend of \)0.28 per share on the Velcon stock.

Dec. 31 Adjusted the Velcon investment to its current market value of $58.

Requirements

Journalize the entries for 2018. Explanations are not required.

Short answer

Both sides of the Journal total$11,656.

Step-by-step solution

Definition of Voting Rights

The rights possessed by the common shareholders of the business entity are known as voting rights. The preferred shareholders do not possess such rights because they are not considered owners of the business.

Journal Entry for Transactions

Date	Accounts and Explanation	Debit $	Credit $
14 Jan 2018	Equity investment	$10,600
	Cash		$10,600
22 Aug 2018	Cash	$56
	Dividend revenue		$56
31 Dec 2018	Fair value adjustment	$1,000
	Unrealized holding gains		$1,000
	No Journal entry is made for undistributed net income.
		$11,656	$11,656