On January 2, 2012, Lilly Company purchased 1,000 shares of Grey Company common stock for $36,000. The stock has a par value of $10 and is part of the total stock outstanding of 20,000 shares of Grey Company. Lilly Company classifies the stock as available-for-sale. Total stockholders' equity of Grey Company on January 2, 2012 was $600,000. Lilly's securities-fair-value adjustment account for available-for-sale securities has a debit balance of $5,000 on January 1, 2012.
Required:
Prepare necessary journal entries in accordance with generally accepted accounting principles on the books of Lilly Company for the following transactions.
(a) January 2, 2012: Lilly purchases the shares of Grey Company described above.
(b) December 31, 2012: Lilly receives an $.80 per share dividend from Grey, and Grey announces net income for 2003 of $200,000.
(c) December 31, 2012: Grey common is selling for $30 per share. Lilly's management views this decline as being only temporary in nature. Grey's common is Lilly's only available-for-sale security.
(d) February 15, 2013: Lilly sells 500 of the shares purchased on January 2, 2012 at $35 per share.