On January 1, 20X1, Entity A and Entity B, both public entities, incorporated Entity C by investing P3,000,000 and P2,000,000 for a capital interest ratio of 60:40. The contractual agreement of the incorporating entities provided that the decisions on relevant activities of Entity C will require unanimous consent of both Moreover, Entity A and Entity B will have rights to the net assets of Entity C.The financial statements of Entity C provided the following data for 20X1:Entity C reported a net income of P1,000,000 for 20X1 and paid cash dividends of P400,000 on December 31,During 20X1, Entity C sold inventory to Entity A with a gross profit of P50,000. 80% of those inventories were resold by Entity A to third persons during The remainder was resold to third persons during 20X1.On July 1, 20X1, Entity C sold a piece of machinery to Entity B at a loss of P20,000. At the time of sale, the machinery has remaining useful life of two (2) Determine the following:The investment income to be reported by Entity A for the year ended December 31,The balance of Investment in Entity C to be reported by Entity B on December 31,

When investment made by one entity in another entity is more than 20%, equity method shall be used…

Answered: On January 1, 20X1, Entity A and Entity…

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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On January 1, 20X1, Entity A and Entity B, both public entities, incorporated Entity C by investing P3,000,000 and P2,000,000 for a capital interest ratio of 60:40. The contractual agreement of the incorporating entities provided that the decisions on relevant activities of Entity C will require unanimous consent of both Moreover, Entity A and Entity B will have rights to the net assets of Entity C.

The financial statements of Entity C provided the following data for 20X1:

Entity C reported a net income of P1,000,000 for 20X1 and paid cash dividends of P400,000 on December 31,
During 20X1, Entity C sold inventory to Entity A with a gross profit of P50,000. 80% of those inventories were resold by Entity A to third persons during The remainder was resold to third persons during 20X1.
On July 1, 20X1, Entity C sold a piece of machinery to Entity B at a loss of P20,000. At the time of sale, the machinery has remaining useful life of two (2)

Determine the following:

The investment income to be reported by Entity A for the year ended December 31,
The balance of Investment in Entity C to be reported by Entity B on December 31,

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