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1. Cullumber Corporation purchased 400 shares of Sherman Inc. common stock for $14,100 (Cullumber does not...

1. Cullumber Corporation purchased 400 shares of Sherman Inc. common stock for $14,100 (Cullumber does not have significant influence). During the year, Sherman paid a cash dividend of $3.25 per share. Assume the stock is nonmarketable.

Prepare Cullumber’s 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.)

2. On January 1, 2017, Metlock Corporation purchased 40% of the common shares of Bonita Company for $173,000. During the year, Bonita earned net income of $91,000 and paid dividends of $22,750.

Prepare the entries for Metlock to record the purchase and any additional entries related to this investment in Bonita Company in 2017

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Both are individual questions, although both have been answered:) Solution: Naming convetion is not available, can be slightly different: ournal Entries 1) Event Account title and explaination Debit Credit $14,100 Equity Investment Trading Cash To record the investment) Cash Dividend Revenue To record the receipt of dividend received) No Entry No Entry (No fair value adjustment entry will be made in case of non-marketable stock) $14,100 b) (400*3.25) $ 1,300 $ 1,300 0 0 2) ournal Entries Event Account title and explaination Debit Credit Investment in Bonita (or Equity Investment) Cash To record the investment) Investment in Bonita Revenue from Investment To record the income from investment) Cash Investment in Bonita To record the adjustment of dividend received) 173000 173000 b) (91000*40%) $36,400 $36,400 c) (22750*40%) $ 9,100 S 9,100

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