Question
Royal, Inc., acquired 40,000 of Crown Corporations outstanding common shares on January 1, 2021, for $270,000. The investment represented a 5% ownership stake in Crown.
Royal, Inc., acquired 40,000 of Crown Corporation’s outstanding common shares on January 1, 2021, for $270,000. The investment represented a 5% ownership stake in Crown. During 2021, Crown reported net income of $420,000 and paid total dividends of $70,000 on Feb, 14th, 2021. The fair market value of Crown Corporations stock at Dec. 31, 2021 was $9 per share.
On January 1, 2022, Royal purchased an additional 200,000 shares of Crown for $2,200,000. During 2022, Crown reported net income of $950,000 and paid total dividends of $80,000 on Feb. 14, 2022. The fair market value of Crown Corporations stock at Dec. 31, 2022 was $16 per share.
Crown Corp. did not issue any additional common shares during 2021 or 2022 and its market value at all dates was equal to its book value.
Prepare the entries to record Royal’s investment in Crown during 2021 and 2022.
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Cornerstones of Financial Accounting
Authors: Jay Rich, Jeff Jones
4th edition
978-1337690881, 9781337669450, 1337690880, 1337690899, 1337669458, 978-1337690898
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