Melville Inc. purchased 2,000 common shares (20%) of Raymore Ltd. on January 1, Year 5 for $42,000. Additional information on Raymore for the two years ending December 31, Year 6, is as follows: Year Year 5 Year 6 Net Income $25,000 28,000 Dividends Paid $ 13,000 14,000 Market Value per Share at end of period $22.00 22.60 At December 31, Year 6, Raymore had some inventory that was purchased from Melville. Melville had recorded a gross profit of $1,300 on the sale of this inventory. This gross profit should be deducted from Melville's Year 6 profit and investment account under the equity method. On January 1, Year 7, Melville sold its investment in Raymore for $47,000. Required: (a) Calculate the balance in the investment account at December 31, Year 6 under each of the cost and equity methods. (Omit $ sign in your response.) Investment account at end of Year 6 under cost method Investment account at end of Year 6 under equity method $ $ 42000

Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter15: Contributed Capital
Section: Chapter Questions
Problem 1MC
Question

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(b) Calculate the investment income for Year 6 under each of the cost and equity methods. (Omit $ sign in your response.)
Investment income for Year 6 under cost method
Investment income for Year 6 under equity method
(c) Prepare the journal entries for the sale of the shares on January 1, Year 7 under each of the cost and equity methods. (If no entry
required for a transaction/event, select "No Journal Entry Required" in the first account field.)
1
View transaction list View journal entry worksheet
No
A
B
Transaction
01
02
Cash
General Journal
Investment in Raymore
Gain on sale of investment
Cash
Gain on sale of investment
Investment in Raymore
$
$
Debit
47,000
47,000
5,340
Credit
42,000
5,000
47,200
Transcribed Image Text:(b) Calculate the investment income for Year 6 under each of the cost and equity methods. (Omit $ sign in your response.) Investment income for Year 6 under cost method Investment income for Year 6 under equity method (c) Prepare the journal entries for the sale of the shares on January 1, Year 7 under each of the cost and equity methods. (If no entry required for a transaction/event, select "No Journal Entry Required" in the first account field.) 1 View transaction list View journal entry worksheet No A B Transaction 01 02 Cash General Journal Investment in Raymore Gain on sale of investment Cash Gain on sale of investment Investment in Raymore $ $ Debit 47,000 47,000 5,340 Credit 42,000 5,000 47,200
Melville Inc. purchased 2,000 common shares (20%) of Raymore Ltd. on January 1, Year 5 for $42,000. Additional information on
Raymore for the two years ending December 31, Year 6, is as follows:
Year
Year 5
Year 6
Net Income
$25,000
28,000
Dividends
Paid
$ 13,000
14,000
Market Value per Share at
end of period
$22.00
22.60
At December 31, Year 6, Raymore had some inventory that was purchased from Melville. Melville had recorded a gross profit of $1,300
on the sale of this inventory. This gross profit should be deducted from Melville's Year 6 profit and investment account under the equity
method. On January 1, Year 7, Melville sold its investment in Raymore for $47,000.
Required:
(a) Calculate the balance in the investment account at December 31, Year 6 under each of the cost and equity methods. (Omit $ sign
in your response.)
Investment account at end of Year 6 under cost method
Investment account at end of Year 6 under equity method
$
42000
Transcribed Image Text:Melville Inc. purchased 2,000 common shares (20%) of Raymore Ltd. on January 1, Year 5 for $42,000. Additional information on Raymore for the two years ending December 31, Year 6, is as follows: Year Year 5 Year 6 Net Income $25,000 28,000 Dividends Paid $ 13,000 14,000 Market Value per Share at end of period $22.00 22.60 At December 31, Year 6, Raymore had some inventory that was purchased from Melville. Melville had recorded a gross profit of $1,300 on the sale of this inventory. This gross profit should be deducted from Melville's Year 6 profit and investment account under the equity method. On January 1, Year 7, Melville sold its investment in Raymore for $47,000. Required: (a) Calculate the balance in the investment account at December 31, Year 6 under each of the cost and equity methods. (Omit $ sign in your response.) Investment account at end of Year 6 under cost method Investment account at end of Year 6 under equity method $ 42000
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