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.

Question

Quizplus · Accepted Answer

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.

Lessington Corporation Purchases 4,000 Shares of Gonzalez Company Common Stock