Question

Fairbanks Corporation purchased 400 ordinary shares of Sherman Inc. as a trading investment for \(13,200. During the year, Sherman paid a cash dividend of \)3.25 per share. At year-end, Sherman shares were selling for $34.50 per share. Prepare Fairbanks’ journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment

Short answer

Trading investment debited by $13,200 and cash credited by $13,200. Cash debited by $1,300 and dividend revenue credited by $1,300. Fair value investment debited by $600 and unrealized holding gain or loss-income credited by $600.

Step-by-step solution

Entry for the purchase of investment

Date	Particulars	Debit	Credit
	Trading Investment	$13,200
	Cash		$13,200
	(Being entry for the purchase of trading investment)

Dividend revenue entry

Date	Particulars	Debit	Credit
	Cash	$1,300
	Dividend Revenue		$1,300
	(Being entry for the dividend revenue)

Fair adjustment entry

Date	Particulars	Debit	Credit
	Fair Value Investment	$600
	Unrealized Holding Gain or Loss- Income		$600
	(Being entry for the fair value adjustment)