On January 23, 15,000 shares of Tolle Company are acquired at a price of $25 per share plus a $145 brokerage commission. On April 12, a $0.50-per-share dividend was received on the Tolle Company stock. On June 10, 5,700 shares of the Tolle Company stock were sold for $31 per share less a $120 brokerage commission.

Prepare the journal entries for the original purchase, the dividend, and the sale under the cost method.

Dr Investment in shares       $375,125

Cr Cash                                                $375,125

Dr cash                                       $7,500

Cr Investment income                             $7,500

Dr Cash                                      $176,580

Cr investment in shares                            $142,547.50  

Cr gain on investment                               $ 34,032.50  

Explanation:

On the date of purchase the total cash paid is computed thus:

(15,000*$25)+$125=$375,125 which is debited investment account and credited to cash.

The dividends received =15,000*$0.50=$7,500 which debited to cash and credit to investment income.

Sale of 5700 brings in cash $ 176,580.00  ($31*5700)-$120 which is debited to cash and whose cost of $ 142,547.50  (5700*15000*$375,125) would be credited to investment account  while the difference of $ 34,032.50  

($176580-$142,547.50) is credited to gain on investment.

Jan 23

Dr Investment company T $375,145

Cr Cash $375,145

April 12

Dr Cash $7,500

Cr Dividend Revenue $7,5000

June 10

Dr Cash $176,580

Cr investment in shares $142,547.50

Cr gain on investment $34,032.50

Explanation:

Jan 23

Dr Investment company T $375,145

(15,000 shares ×$25)+$145

Cr Cash $375,145

April 12

Dr Cash $7,500

Cr Dividend Revenue $7,5000

($15,000× $0.50-per-share dividend)

June 10

Dr Cash $176,580

($5,700×$31) -$120

Cr investment in shares $142,547.50

Cr gain on investment $34,032.50

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