Rosco Company purchased 35,000 shares of common stock of Paxton Corporation as a long-term investment for $900,000. During the year, Paxton Corporation reported net income of $300,000 and paid dividends of $100,000.
(a) Assuming that the 35,000 shares represent a 10% interest in Paxton Corporation:
1. Prepare the journal entry to record the investment in Paxton stock.
2. Prepare any entries that Rosco Company should make in accounting for its investment in Paxton stock during the year.
3. What is the balance of the Stock Investments account on Rosco Company's books at the end of the year?
(b) Repeat requirement (a) above except assume that the 35,000 shares represent a 20% interest in Paxton Corporation.