Ella Ltd purchased 20% of the shares of Monica Ltd on 1 January 20x2 for cash of $500,000. This purchase resulted in Ella Ltd having significant influence over Monica Ltd. Additional information is provided below: For the year ended 31 December 20X2, Monica Ltd reported profit of $400,000. Monica Ltd's total dividends paid out to all shareholders during 20x2 amounted to $250,000. This was paid from profits made in 20x2. Billy Ltd is 50% owned by Ella Ltd and is Ella's subsidiary. During 20x2, Monica sold $100,000 of inventories to Billy Ltd and made profit of $40,000. As at 31 December 20X2, all of the inventories were still held by Billy Ltd. Required: a) Prepare journal entries for Ella Ltd in 2002 to account for its investment in Monica Ltd using the Equity Method. Use the Reclassification Method to account for the profit and dividends that Ella shares from Monica. (Using the provided journal entry template to enter your answer; workings/calculations or narrations are NOT required.) b) Calculate the carrying amount of investment in Monica Ltd (the balance of investment in associates account) as at 31 December 20x2. Show workings.

Ella Ltd purchased 20% of the shares of Monica Ltd on 1 January 20x2 for cash of $500,000. This purchase resulted in Ella Ltd having significant influence over Monica Ltd. Additional information is provided below: For the year ended 31 December 20X2, Monica Ltd reported profit of $400,000. Monica Ltd's total dividends paid out to all shareholders during 20x2 amounted to $250,000. This was paid from profits made in 20x2. Billy Ltd is 50% owned by Ella Ltd and is Ella's subsidiary. During 20x2, Monica sold $100,000 of inventories to Billy Ltd and made profit of $40,000. As at 31 December 20X2, all of the inventories were still held by Billy Ltd. Required: a) Prepare journal entries for Ella Ltd in 2002 to account for its investment in Monica Ltd using the Equity Method. Use the Reclassification Method to account for the profit and dividends that Ella shares from Monica. (Using the provided journal entry template to enter your answer; workings/calculations or narrations are NOT required.) b) Calculate the carrying amount of investment in Monica Ltd (the balance of investment in associates account) as at 31 December 20x2. Show workings.

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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