Asked by Cedrick Ceballos on May 10, 2024
Verified
On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee. 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. The journal entry to record the purchase under the fair value method would include a
A) debit to Investments for $132,000
B) credit to Cash for $132,000
C) debit to Investments for $132,240
D) credit to Investments for $240
Brokerage Fee
A fee charged by a broker to execute transactions or provide specialized services.
Fair Value Method
An accounting approach used to assess and assign a market-based value to liabilities and assets.
- Learn to handle the accounting for transactions involving investments, encapsulating the purchasing, dividend collection, and sales processes.
Verified Answer
JD
James DurhamMay 16, 2024
Final Answer :
C
Explanation :
The fair value method requires that investments are initially recorded at cost, which includes any fees or commissions paid to acquire the investment. Therefore, the journal entry to record the purchase of 6,000 shares of Lucas Company would include a debit to Investments for $132,000 and a debit to Brokerage Fees for $240, and a credit to Cash for $132,240.
Learning Objectives
- Learn to handle the accounting for transactions involving investments, encapsulating the purchasing, dividend collection, and sales processes.
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