Crespo Company Purchased 42,000 Shares of Common Stock of the Paive

Essay

Crespo Company purchased 42,000 shares of common stock of the Paive Corporation as an investment for $1,000,000. During the year, Paive Corporation reported net income of $400,000 and paid dividends of $100,000.
Instructions
(a) Assuming that the 42,000 shares represent a 15% interest in Paive Corporation:
1. Prepare the journal entry to record the investment in Paive stock.
2. Prepare any entries that Crespo Company should make in accounting for its investment in Paive stock during the year.
3. What is the balance of the Stock Investments account on Crespo Company's books at the end of the year?
(b) Repeat requirement (a) above except assume that the 42,000 shares represent a 25% interest in Paive Corporation.