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.

(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.