Significant Influence Investment - Prepare all calculations.On January 1, 2020, Joy Inc. paid $900,000 to purchase 30% of Happy Inc's outstanding voting shares. Joy Inc. has significant influence over Happy Inc. Assume that Joy Inc. is using the EQUITY method of accounting for this investment of significant influence. The following took place in 2020:Happy’s earnings for 2020 were $150,000, which included $20,000 (in profits) that resulted from sales of inventory from Joy.Happy has not yet used the inventory purchased from Joy. They will process it next year and the resulting product will be sold to one of Happy’s key customers.Happy declared and paid dividends in the amount of $40,000 during 2020.Required: a) What should be reported as “investment in Happy Inc.” on Joy’s balance sheet as of December 31, 2020?b) prepare all the necessary journal entries for Joy for 2020.

Equity method is an accounting technique of recording the financial transactions related to…

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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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Significant Influence Investment - Prepare all calculations.

On January 1, 2020, Joy Inc. paid $900,000 to purchase 30% of Happy Inc's outstanding voting shares. Joy Inc. has significant influence over Happy Inc. Assume that Joy Inc. is using the EQUITY method of accounting for this investment of significant influence. The following took place in 2020:

Happy’s earnings for 2020 were $150,000, which included $20,000 (in profits) that resulted from sales of inventory from Joy.
Happy has not yet used the inventory purchased from Joy. They will process it next year and the resulting product will be sold to one of Happy’s key customers.
Happy declared and paid dividends in the amount of $40,000 during 2020.

Required:

a) What should be reported as “investment in Happy Inc.” on Joy’s balance sheet as of December 31, 2020?

b) prepare all the necessary journal entries for Joy for 2020.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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