Asked by NURUL ASMIRA JAKIMIN on Jun 25, 2024
Verified
Lessington Corporation purchases 4,000 shares of Gonzalez Company common stock for $150,000 cash.Gonzalez has 500,000 shares of stock currently outstanding.Lessington's entry to record the purchase would include a:
A) Debit to Stock Investments for $150,000.
B) Credit to Common Stock for $150,000.
C) Credit Equity Method Investment $150,000.
D) Debit to Long-Term Investments-AFS for $150,000.
E) Debit to Equity Method Investment for $150,000.
Stock Investments
Purchasing and holding shares of stock in a company with the expectation of earning a return in the form of dividends, capital gains, or both.
Common Stock
A type of security that represents ownership in a corporation, granting shareholders voting rights and a share in the company’s profits through dividends.
Equity Method Investment
An accounting technique used by firms to assess the profits earned through their investments in other companies by reporting these profits in proportion to their ownership stake.
- Understand the impact of investment activities on financial statements.
Verified Answer
EM
Ederline MilienJun 28, 2024
Final Answer :
A
Explanation :
The correct entry to record the purchase of another company's stock is a debit to Stock Investments (or a similarly named account) for the cost of the purchase, which in this case is $150,000. This reflects the increase in the asset account due to the investment.
Learning Objectives
- Understand the impact of investment activities on financial statements.