Poultry Company had the following transactions pertaining to stock investments: a.February 1,Purchased 3,000 shares of Hudson Company (10% ownership)at the market price of $17 per share.Poultry Company intends to keep the stock for more than one year and classifies the stock as available-for-sale.
B.June 1,Received cash dividends of $0.50 per share on Hudson Company stock.
C.October 1,Sold 3,000 shares of Hudson stock for $54,000.
What journal entry is prepared on June 1?

Question

Quizplus · Accepted Answer

When a company receives a cash dividend on its stock investment, it should debit Cash and credit Dividend Revenue. In this case, Poultry Company received a cash dividend of $0.50 per share on its 3,000 shares of Hudson Company stock, resulting in a total of $1,500. Therefore, the correct journal entry is to debit Cash for $1,500 and credit Dividend Revenue for $1,500. Option A is incorrect because there is no interest revenue involved. Option B is incorrect because it would be applicable if Poultry Company had purchased the Hudson stock with the intention of holding it for the long-term. Option C is incorrect because there is no interest receivable involved.

Poultry Company Had the Following Transactions Pertaining to Stock Investments