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11 March, 16:11

On January 3, 2018, Roberts Company purchased 30% of the 100,000 shares of common stock of Thomas Corporation, paying $1,500,000. There was no goodwill or other cost allocation associated with the investment. Roberts has significant influence over Thomas. During 2018, Thomas reported net income of $300,000 and paid dividends of $100,000. On January 4, 2019, Roberts sold 15,000 shares for $800,000. What is the appropriate journal entry to record the sale of the 15,000 shares?

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  1. 11 March, 19:00
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    Cash 800,000 debit

    Investment 780,000 credit

    Gain on sale 20,000 credit

    Explanation:

    Value of the investment at sale date:

    acquisition: 100,000 shares x 30% = 30,000 shares 1,500,000

    proportional net income: 300,000 x 30% = 90,000

    proportional dividends: 100,000 x 30% = (30,000)

    Value at January 4th, 2019: 1,560,000

    Value per share: $ 1,560,000 / 30,000 shares = 52 dollars per share.

    It sold 15,000 shares:

    15,000 x 52 dollars = 780,000

    cash proceeds: 800,000

    As we receive more than what the shares are worth, we recognize a gain for 20,000.
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