On February 1, Rinehart Company purchased 780 shares (2% ownership) of Givens Company common...

Question:

On February 1, Rinehart Company purchased 780 shares (2% ownership) of Givens Company common stock for $32 per share. On March 20, Rinehart Company sold 156 shares of Givens stock for $4,524. Rinehart received a dividend of $3.00 per share on April 25. On June 15, Rinehart sold 312 shares of Givens stock for $11,856. On July 28, Rinehart received a dividend of $1.00 per share.

Prepare the journal entries to record the transactions described above.

Accounting for Stock Investments:

The stock investments made by the company are accounted for by using the cost method and the equity method. Cost method is used when the ownership is less than 20% and on the balance sheet, the stock is recorded as a non-current asset at historical cost until shares are sold or are purchased in addition. The amount of dividends received from the investment is added to the income of the company.

Answer and Explanation:

The journal entries to record the transactions are made below:

DateGeneral JournalDebitCredit
February 1Stock Investment (780 shares * $32)$24,960
...

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