On January 2, 2011, Sanborn Tobacco Inc. bought 5% of Jackson Industry's capital stock for $90 million

Question:

On January 2, 2011, Sanborn Tobacco Inc. bought 5% of Jackson Industry's capital stock for $90 million as a temporary investment. Sanborn classified the securities acquired as available-for-sale. Jackson Industry's net income for the year ended December 31, 2011, was $120 million. The fair value of the shares held by Sanborn was $98 million at December 31, 2011. During 2011, Jackson declared a of $60 million.

Required:
1. Prepare all appropriate journal entries related to the investment during 2011.
2. Indicate the effect of this investment on 2011 income before taxes.

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...