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23 May, 01:45

Prepare the journal entries for the following transactions for Morgan Co.

(a) Morgan Co. purchased 23,000 shares of the total of 100,000 outstanding shares of Gordon Corp. stock for $10 per share plus a $400 commission.

(b) Gordon Corp.'s total earnings for the period are $80,000.

(c) Gordon Corp. paid a total of $45,000 in cash dividends.

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  1. 23 May, 05:27
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    (a)

    Dr Investment in Gordon Corp. 230,400

    Cr Cash 230,400

    (to record investment in Gordon Corp.; calculated as 10 x 23,000 + 400)

    (b)

    Dr Investment in Gordon Corp. 18,400

    Cr Share of Gordon Corp earning 18,400

    (to record share of profit in Gordon Corp, calculated as % of Gordon Corp share owned x Gordon Corp's earnings = 23,000/100,000 x 80,000)

    (c)

    Dr Cash 45,000

    Cr Investment in Gordon Corp. 45,000

    (Record dividend receipt from Gordon Corp)

    Explanation:

    Further explanation, as Morgan Co. acquires 23% of Gordon Corp. (23,000/100,000); equity method should be applied.
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