National Star Inc. purchased 112,000 shares of Krypton Labs Inc.
On January 15, 2012, National Star Inc. purchased 112,000 shares of Krypton Labs Inc. directly from one of the founders for a price of $36 per share. Krypton Labs has 400,000 shares outstanding, including the National Star shares. On July 2, 2012, Krypton paid $274,000 in total dividends to its shareholders. On December 31, 2012, Krypton reported a net income of $1,028,000 for the year. National Star Inc. uses the equity method in accounting for its investment in Krypton Labs. Hide ' Hint(s) a. Provide the National Star Inc. journal entries for the transactions involving its investment in Krypton Labs Inc. during 2012. 2012 Jan. 15 2012 July 2 2012 Dec. 31 Hide Feedback Partially Correct Check My Work Feedback
a. Jan 15: Increase the investment and decrease Cash for the purchase price (Shares x Per share amount).
July 2: Calculate the ownership percentage by dividing the acquired shares by the total shares outstanding. Multiply the percentage by the total dividend and debit cash and credit Investment to reduce the investment by the share of dividends.
b. Determine the December 31, 2012, balance of Investment in Krypton Labs Inc. Stock.