Question

Accounting for equity investments

Money Man Investments completed the following transactions during 2018:

Jan. 14 Purchased 400 shares of Technomite stock, paying \(56 per share. The investment represents 25% ownership in Technomite’s voting stock and Money Man has significant influence over Technomite. Money Man intends to hold the investment for the indefinite future.

Aug. 22 Received a cash dividend of \)0.27 per share on the Technomite stock.

Dec. 31 Technomite’s current market value is \(51 per share.

31 Technomite reported net income of \)180,000 for the year ended 2018.

Requirements

1. Journalize Money Man’s transactions. Explanations are not required.

Short answer

Both sides of the journal totals$69,508.

Step-by-step solution

Definition of Significant Influence

Significant influence can be defined as the ability of the investor to participate in the decision-making process and affect the business decisions. Such influence arises when the investor owns 20% to 50% of the voting stock.

Journal Entry 

Date	Accounts and Explanation	Debit $	Credit $
14 Jan 2018	Equity Investment	$22,400
	Cash		$22,400
22 Aug 2018	Cash	$108
	Equity Investment		$108
31 Dec 2018	Unrealized holding losses	$2,000
	Fair value adjustments		$2,000
31 Dec 2018	Equity investment	$45,000
	Revenue from investment		$45,000
		$69,508	$69,508