acker Corporation acquires 30% of the outstanding voting common shares of the Insight Corporation for $600,000.Packer Corporation acquires the investment in Insight Corporation by buying previously issued shares of Insight Corporation from other investors. Between the time of the acquisition and the end of Packer Corporation's next accounting period, Insight Corporation reports earnings of $80,000; and pays a dividend of $30,000 to holders of its common stock.
Insight Corporation reports earnings of $100,000 and pays dividends of $40,000 during the subsequent accounting period.
Assume now that Packer Corporation sells one-fourth of its investment in Insight Corporation for $165,000.The entry is as follows:

Question

Quizplus · Accepted Answer

The correct entry for selling a portion of an investment involves debiting Cash for the amount received ($165,000), crediting the Investment in Stock of Insight Corporation account for the portion of the carrying amount being sold (which is calculated based on the information given but not directly provided here, hence assumed to be $158,250 as per the entry), and recognizing the difference as a Gain on Sale of Investment in Stock of Insight Corporation ($6,750). This entry correctly reflects the increase in cash due to the sale, the decrease in the investment account for the portion sold, and the gain realized from the sale.

Acker Corporation Acquires 30% of the Outstanding Voting Common Shares