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4 November, 21:52

On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee. This purchase represents less than 20% ownership of the Lucas Company. On August 22, Lucas paid a $0.42 dividend per share. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee. Required:Prepare the journal entries for the original purchase, dividend, and sale. Refer to the Chart of Accounts for exact wording of account titles.

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  1. 4 November, 22:21
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    The Journal entries are as follows:

    (a) On February 12,

    Investment in equity A/c Dr. $132,240

    To cash A/c $132,240

    (To record the original purchase)

    working:

    cost of investment recorded = [ (6,000 * 22) + 240]

    = $132,240

    (b) On August 22,

    Cash A/c Dr. $2,520

    To Dividend income $2,520

    (To record the dividend income)

    Working:

    Dividend received = 6,000 * $0.42

    = $2,520

    (c) On November 10,

    cash [ (4000 * 28) - 160) A/c Dr. $111,840

    To Investment in equity [132,240 * 4000/6000] $88,160

    To Gain on sale of investment $23,680

    (To record the investment sold)
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