0:02 okay now let's talk about how to account
0:05 for an investment in stocks so when
0:06 you're doing this you'll need to look
0:09 and see which method you'll be using and
0:11 you'll do that by looking at the
0:13 ownership percentage and for this
0:15 problem we're going to assume that we
0:18 own less than 20% of the stock that
0:19 we're buying of the company stock that
0:21 we're buying so we're going to account
0:22 for it by the cost method which just
0:24 means that we're going to report this at
0:27 cost when we buy it any dividends that
0:28 we receive we're going to record as
0:30 Revenue when we go to sell we're going
0:34 to sell it um and recognize a gain or a
0:37 loss on sale of investment so this is if
0:39 we don't exhibit any control over the
0:41 company that we're buying because we own
0:43 less than 20% of it here's how it's
0:47 going to work on February the 10th we
0:50 purchased 15,000 shares of Toby company
0:52 at a price of
0:55 $25 plus we paid $150 for a brokerage
0:58 commission fee so that means that we
1:00 bought 15,000 shares
1:04 at $25 per share for a total If I
1:07 multiply across of
1:10 $375,000 we have to add our brokerage
1:13 Commission of $150 to find out how much
1:15 we pay and how much we're going to put
1:19 this investment on our books at so it
1:21 goes under investment that's an asset
1:23 account because we're holding it for
1:30 sale so investment of Toby Company stock
1:32 I'm going to debit for the full price
1:34 including that brokerage commission $375,900
1:36 $375,900
1:40 and I bought it using cash so I will
1:42 show that my cash went down by the same
1:45 amount that is purchasing it using the
1:48 cost method next I'm going to receive
1:50 dividends on April the 12th I received a
1:55 40 Cent per share dividend so that means
1:58 that I received money and I received 40
2:01 cents time times the number of shares
2:04 that I own 15,000 shares so I received
2:06 cash dividend of
2:10 $6,000 under the cost method I record my
2:20 revenue on May 29th I decide to sell
2:22 some of my shares I'm going to sell
2:25 6,000 of my shares so I need to figure
2:28 out how much I originally paid for those
2:30 so that I can compare how much I'm
2:31 selling them for so I can decide if I
2:35 have a gain or a loss so my original
2:36 price was
2:40 375,000 I divide that that by the number
2:41 of shares that I originally purchased
2:43 and I find out that with that brokerage
2:47 fee included I paid
2:52 $251 for these shares so now that I'm
2:54 going to sell some of them I'm going to
2:57 say 6,000 shares that's how many I'm
3:02 selling times this $25 and 1 cent so my
3:04 original purchase price which is now how
3:07 much I'm selling is
3:10 50,60 all right so I'm going to be
3:12 getting rid of that so it's called
3:17 investment Toby Company stock I'm going
3:19 to credit that because I'm selling it so
3:26 50,60 whenever I sell something I get
3:28 cash I call that proceeds let's see how
3:30 we calculate how much proceeds I got
3:33 from this sale so it tells me that I
3:36 sold 6,000 shares for
3:40 $32 less $120 brokerage commission so I
3:44 had to give that to um The Brokerage fee
3:46 so what I will do is I will say 6,000
3:48 shares that I sold times the $32 per
3:50 share that I sold it for and I'll
3:52 subtract Out The Brokerage fee that went
3:55 to pay for this transaction so when I do
4:03 when I compare my original purchase
4:06 price of the 6,000 shares to the amount
4:08 that I got for selling the 6,000 then I
4:11 can see that my proceeds is greater than
4:14 my price which means I have a gain and a
4:17 gain has a normal credit balance gains
4:19 work just like revenues do so they have
4:20 normal credit balance so I'll need to
4:23 put it in as a credit
4:26 41820 so before I move on I'll make sure
4:28 that my debits equal my credits my total
4:31 debits for this journal entry equal
4:35 19188 my total credits also equal 191
4:39 880 so I am in Balance so that is how
4:42 you account for the purchase of a stock
4:46 investment under the cost method as well
4:49 as receipt of dividend and then um a
4:52 sale of part of your shares of stock all
4:53 under the cost method so let me know if
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