This section explains the accounting basics for equity securities, including that for acquisition, dividends, and disposition.
Acquisition. Equity
securities are recorded at cost when acquired, including commissions or
brokerage fees paid. To illustrate, assume that Music City purchases
1,000 shares of Intex common stock at par value for $86,000 on October
10, 2010. It records this purchase of available-for-sale (AFS)
securities as follows.
Dividend earned. Any
cash dividends received are credited to Dividend Revenue and reported
in the income statement. To illustrate, on November 2, Music City
receives a $1,720 quarterly cash dividend on the Intex shares, which it
records as:
Disposition. When
the securities are sold, sale proceeds are compared with the cost, and
any gain or loss is recorded. To illustrate, on December 20, Music City
sells 500 of the Intex shares for $45,000 cash and records this sale as:
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