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Assume an investor purchases all of the stock of the inve

Assume an investor purchases all of the stock of the inve

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Accounting for Equity Investments (Basic) Assume an investor purchases all of the stock of the investee (and, thus, its business) in a stock purchase for $2,250. The reported book values of the investee's net assets equal their fair values. The investee's balance sheet on the date of purchase is as follows: Accounts receivable $225 Mortgage payable $225 Inventories 450 Building Total assets Now, assume, subsequent to the purchase, the investee reports net income of $450 and pays $135 in dividends to the investor. Required 1800 Stockholders' equity 2250 $2,475 Total liabilities and equity $2,475 a. At what amount will the investee's Stockholders' Equity be reported after income and dividends have been closed to Retained Earnings (assume no other changes to Stockholders' Equity)? $ b. Provide the following journal entries: 1. Record the recognition of Equity Income by the investor. 2. Record the receipt of the $135 dividend. 1. 2. (to record equity income.) (to record the receipt of dividends.) V Debit Credit c. At what amount is the Equity Investment reported on the investor's balance sheet? $
Transcribed Image Text:Accounting for Equity Investments (Basic) Assume an investor purchases all of the stock of the investee (and, thus, its business) in a stock purchase for $2,250. The reported book values of the investee's net assets equal their fair values. The investee's balance sheet on the date of purchase is as follows: Accounts receivable $225 Mortgage payable $225 Inventories 450 Building Total assets Now, assume, subsequent to the purchase, the investee reports net income of $450 and pays $135 in dividends to the investor. Required 1800 Stockholders' equity 2250 $2,475 Total liabilities and equity $2,475 a. At what amount will the investee's Stockholders' Equity be reported after income and dividends have been closed to Retained Earnings (assume no other changes to Stockholders' Equity)? $ b. Provide the following journal entries: 1. Record the recognition of Equity Income by the investor. 2. Record the receipt of the $135 dividend. 1. 2. (to record equity income.) (to record the receipt of dividends.) V Debit Credit c. At what amount is the Equity Investment reported on the investor's balance sheet? $
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