Question

On January 2, 2018 Reddenblack, Inc. bought 2,000 shares of Green Corp.'s convertible, $4 par, 5% preferred stock for $140,000. On that same day, Reddenblack also bought 10,000 shares (a 25% interest) in Blue Co.’s common stock for $820,000, as well as $120,000 of Purple Company’s common stock (12,000 shares). On January 3, 2018, Reddenblack acquired $100,000 of 6% mortgage bonds of the Orange Corporation at their face value, which it intends to hold until the bonds mature in 2024. These are the only investments that Reddenblack owns. At December 31, 2018,

1. Purple Company reported earnings of $920,000, paid a cash dividend of $2 per share, and had market value of $12 per share;

2. Green Corp. reported earnings of $743,000, paid its preferred dividend to all shareholders, and had a market value of $65 per share.

3. Orange Corporation reported a net loss from operations of $(21,000), paid its annual interest to bondholders, and had a market value 97; and

4. Blue Co. reported earnings of $560,000 for the year, paid a dividend of $3 per share, and had a market value of $86 per share.

Prepare the journal entries for Reddenblack at December 31, 2018, relating to its investments

Answer 1

1) Bank Dr $60,400

To Preferred Dividend on Green Corp's Preferred Stock (2000*4*5%) $400

To Dividend on Blue Co's Common Stock (10,000*3) $30,000

To Dividend on Purple Company's Common Stock (12,000*2) $24,000

To Interest on Orange Corporation's Mortgage Bonds (100,000*6%) $6,000

(Being dividend and interest income booked)

2) Profit & Loss Dr $10,000

To Investment in Green Corp's Preferred Stock [(70-65)*2000] $10,000

(Being investment revalued)