70.2K

Verified Solution

Link Copied!

On November 1, 2019, LMN Co. bought 6,000 shares of 567 Firm for $20.00 per share. This investment is classified by LMN Co. as an available-for-sale security. The following information relates to events subsequent to the purchase:

• November 15, 2019: 567 Firm paid (in cash) a dividend of $0.60 per share
• December 31, 2019: Market price of 567 Firm shares is $30.00 per share
• April 14, 2020: LMN Co. sold 3,000 shares of 567 Firm for $35.00 per share
• December 31, 2020: Market price of 567 Firm shares is $31.00 per share.

When recording the following transactions, please include the calculation (i.e., the pieces) supporting each number in your journal entry. Please also remember to use brackets to indicate an account decreasing, e.g., (1000).

Please do the following:

1. Make the accounting entry for LMN Co. to record the purchase of 567 Firm stock on November 1, 2019.

2. Make the accounting entry for LMN Co. to record the receipt of dividends on November 15, 2019.

3. Make the accounting entry for LMN Co. to record the market value of 567 Firm stock on December 31, 2019. Would net income be affected?

4. Make the accounting entry for LMN Co. to record the sale of 567 Firm stock on April 14, 2020.

5. For this final question, now assume that the 567 Firm is classified by LMN Co. as a trading security. Make the accounting entry for LMN Co. to record the market value of 567 Firm stock on December 31, 2020. Would net income be affected?

Answer & Explanation Solved by verified expert

See Answer