On January 1, 2014, Rusty, Inc. decides to invest in 10,000 shares of Horsepasture stock when the

Question:

On January 1, 2014, Rusty, Inc. decides to invest in 10,000 shares of Horsepasture stock when the stock is selling for $ 15 per share. On July 15, 2014, Horsepasture declares a $ 0.50 per share cash dividend to stockholders of record on July 22, 2014, to be paid on August 1, 2014. On December 31, 2014, Horsepasture reports net income of $ 80,000 for 2014. Assume Horsepasture has 25,000 shares of voting stock outstanding during 2014.

Requirements

1. Identify what type of investment the Horsepasture stock is for Rusty.

2. Journalize the transactions related to Rusty’s investment in the Horsepasture stock during 2014.

3. In what category and at what value would Rusty’s report the investment on the December 31, 2014, balance sheet?

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...