Purple Corporation pays $536,000 to acquire 40% of the equity securities of Blue,Inc.on May 5,2019.In the journal entry to record this transaction ________.

Question

Quizplus · Accepted Answer

When acquiring equity securities, the journal entry involves a debit to Equity Investments and a credit to Cash or a payable. In this case, Purple Corporation paid $536,000 to acquire 40% of Blue, Inc. Therefore, Equity Investments-Blue Inc. will be debited for $536,000. A is incorrect because Equity Investments-Blue Inc. should be debited, not credited. C is incorrect because Common Stock Holdings-Blue Inc. is not involved in this transaction. D is incorrect because there is no revenue being generated from this investment transaction.

Purple Corporation Pays $536,000 to Acquire 40% of the Equity