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Unit 1: June 2012, Question #1

3/14/2018

4 Comments

 
No. 2(c): Below are the related explanations and the journal entries with narratives to record the transactions of Bernice Inc.
Note 1:
The par value of the share is $10, however the 15,000 shares were exchanged for assets worth $240,000 therefore this means that they were issued at a value of $16 per share, ($240,000/1500 shares). The excess of $6, ($16-$6), is the par value is the share’s premium.
Notes 2 and 3:
Bernice Inc purchased 35% of the outstanding shares of Fly Corporation and Fly Corporation paid out a total cash dividend of $120,000. Therefore Bernice Inc received 35% of $120,000 = $42,000.
Note 4:
The loan interest due is calculated at $80,000 x 10% x 3/12 since only three (3) months interest has been accrued.
Note 5:
The value of the stock dividend paid is $10 x 9,000 shares.
Now that all the necessary workings has been done the journal entries can be prepared.
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I hope that you found this proposed solution helpful! If you did please share it! Also, feel free to ask any questions or to comment below. Best of luck!
4 Comments
Evelyn
5/10/2019 05:35:25 pm

Thanks so much for this! For the third entry, the question stated that Fly Corporation paid a total dividend of $120,000, and since we purchased 35% of the shares, how is the figure for dividends not 35% x $120,000, ie.$42,000?

Reply
Krystal
5/22/2019 09:40:10 pm

Hi Evelyn!

You are most welcome!

Yes it should be $120,000 x 35% = $42,000 it has been adjusted!

Best of luck to you!

Reply
Evelyn
5/23/2019 06:51:41 am

Thank you again! This site is such a big help to me. I really appreciate all the time and effort you put into working on these solutions to help students like myself.

Krystal
2/24/2021 07:07:31 pm

Hi Evelyn,

Thank you for taking the time to express your sentiments!

It motivates me to know that you found the site helpful.

Best of luck to you!

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    The author holds a Bsc (Hons) Degree in Applied Accounting from Oxford Brookes University, England and enjoys a successful career as an Accounting Supervisor and a private tutor.

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