Mars Services,Inc.pays $700,000 to acquire 30% (200,000 shares)of voting stock of Grey Investments,Inc.on January 5,2017.Grey Investments,Inc.declares and pays a cash dividend of $4.4 per share on June 14,2017.Which of the following is the correct journal entry for the transaction on June 14,2017?

Question

Quizplus · Accepted Answer

When a cash dividend is declared and paid by an investee, the investor (Mars Services, Inc.) needs to record its share of the dividend as a return on its investment in Grey Investments, Inc. Since Mars Services, Inc. owns 30% of Grey Investments, Inc.'s voting stock, it is entitled to receive 30% of the dividend.

The correct journal entry to record this transaction on June 14, 2017, would be:

Debit: Cash (30% of $4.4 per share * 200,000 shares) = $264,000
Credit: Investment in Grey Investments, Inc. = $264,000

Option A and B are incorrect because they do not account for the dividend payment received from Grey Investments, Inc. Option D is incorrect because it records a loss on the investment, which is not relevant to the dividend payment.