Recording Entries for Equity Investment: Equity Method On January 1, 2020, Allen Corporation purchased 30% of the 75,000 outstanding common shares of Towne Corporation at $15 per share as a long-term investment. On the date of purchase, the book value and the fair value of the net assets of Towne Corporation were equal. During the year, Towne Corporation reported net income of $60,000. Towne Corporation declared and paid cash dividends of $20,000 on December 30, 2020, to shareholders on record. As of December 31, 2020, common shares of Towne Corporation were trading at $20 per share. a. Record the entries in 2020 assuming that Allen Corporation had significant influence over Towne Corporation. Date Account Name Dr. Cr. Jan. 1, 2020 To record investment purchase. Dec. 30, 2020 To record receipt of dividends. Dec. 31, 2020 To record proportionate share of investee's net income. b. Indicate the effects of this investment on the 2020 income statement and year-end balance sheet. Note: Use a negative sign to indicate a loss. Income Statement 2020 Other Revenues and Gains Balance Sheet, December 31 2020 Assets Please answer all parts of the question.
Recording Entries for Equity Investment: Equity Method On January 1, 2020, Allen Corporation purchased 30% of the 75,000 outstanding common shares of Towne Corporation at $15 per share as a long-term investment. On the date of purchase, the book value and the fair value of the net assets of Towne Corporation were equal. During the year, Towne Corporation reported net income of $60,000. Towne Corporation declared and paid cash dividends of $20,000 on December 30, 2020, to shareholders on record. As of December 31, 2020, common shares of Towne Corporation were trading at $20 per share. a. Record the entries in 2020 assuming that Allen Corporation had significant influence over Towne Corporation. Date Account Name Dr. Cr. Jan. 1, 2020 To record investment purchase. Dec. 30, 2020 To record receipt of dividends. Dec. 31, 2020 To record proportionate share of investee's net income. b. Indicate the effects of this investment on the 2020 income statement and year-end balance sheet. Note: Use a negative sign to indicate a loss. Income Statement 2020 Other Revenues and Gains Balance Sheet, December 31 2020 Assets Please answer all parts of the question.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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QUESTION 12
Transcribed Image Text:Recording Entries for Equity Investment: Equity Method
On January 1, 2020, Allen Corporation purchased 30% of the 75,000 outstanding common shares of Towne Corporation at $15 per share as a long-term investment. On the date of purchase, the book value and the fair value of the net assets of
Towne Corporation were equal. During the year, Towne Corporation reported net income of $60,000. Towne Corporation declared and paid cash dividends of $20,000 on December 30, 2020, to shareholders on record. As of December 31, 2020,
common shares of Towne Corporation were trading at $20 per share.
a. Record the entries in 2020 assuming that Allen Corporation had significant influence over Towne Corporation.
Date
Account Name
Dr.
Cr.
Jan. 1, 2020
To record investment purchase.
Dec. 30, 2020
To record receipt of dividends.
Dec. 31, 2020
To record proportionate share of investee's net income.
b. Indicate the effects of this investment on the 2020 income statement and year-end balance sheet.
Note: Use a negative sign to indicate a loss.
Income Statement
2020
Other Revenues and Gains
$
Balance Sheet, December 31
2020
Assets
Please answer all parts of the question.
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