Question

On January 1, 2014, Presto Corporation purchased, as a longterm investment, 5,000 shares of the outstanding voting common stock of Shazam Corporation at $20 per share. During 2014, the following events occurred at Shazam Corporation:

Net income reported for 2014: $30,000.00 Dividends declared and paid (per share) : $0.66

Market price of common stock @ 12/31/14 : $34.00

A. Prepare the journal entry for Presto Corporation to record the investment (use an account titled “Longterm investment”).

B. Assume two independent situations, Case A for 5,000 shares as 10% ownership and Case B for 5,000 shares as 40% ownership.

For each situation, prepare the following entries:

1. To recognize net income for 2014.

2. To record cash dividend declared and received.

3. To record any adjustment to market price of stock at yearend.