On May 20,2011, Alexis Co. paid $750,000 to acquire 25,000 common shares (10%) of TKR Corp. as a long-term investment. On August 5, 2012, Alexis…

1. On May 20,2011, Alexis Co. paid $750,000 to acquire 25,000 common shares (10%) of TKR Corp. as a long-term investment. On August 5, 2012, Alexis sold one-half of these shares for $475,000. What valuation method should be used to account for this stock investment? Prepare entries to record both the acquisition and the sale of these shares.(2) Assume the same facts as in (1) except that the stock acquired represents 40% of TKR Corp’s outstanding stock. Also assume that TKR Corp. paid a $125,000 dividend on November 1,2011, and reported a net income of $550,000 for 2011. Prepare the entries to record(a) the receipt of the dividend and (b) the December 31,2011, year-end adjustment required for the investment account.

SOLUTION:The investment shall be classified as available for sale securities.Journal Entries in the books of Alexis CompanyParticulars Debit Investment in Available for sale securitiesCash(To…

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