Question

tb problem qu. 15 - 223 (algo) accounting for stock investments with insignificant influence
prepare entries for the following transactions involving short - term stock investments.
a. february 1, purchased 750 shares of schwab company stock at $22 per share. this stock investment results in it having an insignificant influence over schwab.
b. march 31, received a $3 per share cash dividend on the schwab stock purchased on february 1.
c. july 6, sold 375 shares of schwab stock for $32 per share.
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journal entry worksheet
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february 1, purchased 750 shares of schwab company stock at $22 per share. this stock investment results in it having an insignificant influence over schwab.
note: enter debits before credits.

Explanation:

Step1: Purchase of stock

When purchasing stock, we debit the investment account (since it's an asset increase) and credit the cash account (as cash is going out). The cost of the purchase is \(750\times22 = 16500\).
So, the entry is:
Debit: Investments - Schwab Company \(16500\)
Credit: Cash \(16500\)

Step2: Receipt of dividend

Dividends received are income. We debit cash (asset increase) and credit dividend revenue (revenue increase). The dividend amount is \(750\times3=2250\).
So, the entry is:
Debit: Cash \(2250\)
Credit: Dividend Revenue \(2250\)

Step3: Sale of stock

First, find the cost of the 375 shares sold. Since we bought 750 shares at $22 each, the cost per share is $22. The cost of 375 shares is \(375\times22 = 8250\).
The selling price is \(375\times32=12000\).
We debit cash (asset increase - amount received), credit the investment account (asset decrease - cost of shares sold), and credit gain on sale of investment (since selling price > cost, it's a gain).
So, the entry is:
Debit: Cash \(12000\)
Credit: Investments - Schwab Company \(8250\)
Credit: Gain on Sale of Investment \(12000 - 8250=3750\)

Answer:

For a. February 1:

Date	General Journal	Debit	Credit
	Cash		16500

For b. March 31:

Date	General Journal	Debit	Credit
	Dividend Revenue		2250

For c. July 6:

Date	General Journal	Debit	Credit
	Investments - Schwab Company		8250
	Gain on Sale of Investment		3750