Chapter 16, Problem 16.14E

Equity-Investments, Equity Method. Book Value of Net Assets Equal to Fair Value. On January 1, Douglas Stores, Incorporated acquired 30% of Kirk Shoe Company Douglas is acquiring the affiliate to secure a reliable source of supply. Douglas acquired 195,000 shares of the 650,000 shares of the investee company at a cost of $2,540,000. At the time of acquisition, the book value of Kirk’s net assets equaled its market value Kirk reported $8,136,700 net income and declared and paid dividends of $2,275,000 at the end of the year of acquisition

Required

1. a. Prepare the journal entry required to record the acquisition of the investment in Kirk Shoe.
2. b. Prepare the journal entry required to record Douglas’s share of the investee’s net income
3. c. Prepare the journal entry required to record the receipt of the cash dividends.
4. d. What is the carrying value of Douglas’s investment in Kirk Shoe at the end of the year?