EBK ADVANCED FINANCIAL ACCOUNTING
EBK ADVANCED FINANCIAL ACCOUNTING
11th Edition
ISBN: 8220102796096
Author: Christensen
Publisher: YUZU
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Question
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Chapter 4, Problem 4.1E

a.

To determine

Introduction: Investment is the asset that is acquired for the generation of income or return in the long run. Investments are used to create capital for future utilization. The return obtained from investments is used in operations of the business.

To prepare: Journal entries that Company R would record for investment in Company S using the cost method.

a.

Expert Solution
Check Mark

Explanation of Solution

In the books of Company R:

Record of purchase of common stock:

    DateAccount Debit ($)Credit($)
    20X5Investment in Company S Common Stock270,000
    Cash 270,000
    (To record purchase of common stock)

Table (1)

  • Investment in Company S common stock is an asset and it is increased by $270,000. Therefore, Investment in Company S common stock account is debited with $270,000.
  • Cash is an asset and it is decreased by $270,000. Therefore, the cash account is credited with $270,000.

Record dividend income received:

    DateAccount Debit ($)Credit($)
    20X5Cash5,000
    Dividend Income5,000
    (To record dividend income)

Table (2)

  • Cash is an asset and it is increased by $5,000. Therefore, the cash account is debited with $5,000.
  • Dividend income is income and it is increased by $5,000. Therefore, Dividend income account is credited with $5,000.

Record dividend income received:

    DateAccount Debit ($)Credit($)
    20X6Cash15,000
    Dividend Income15,000
    (To record dividend income)

Table (3)

  • Cash is an asset and it is increased by $15,000. Therefore, the cash account is debited with $15,000.
  • Dividend income is income and it is increased by $15,000. Therefore, Dividend income account is credited with $15,000.

Record dividend income received:

    DateAccount Debit ($)Credit($)
    20X7Cash35,000
    Dividend Income35,000
    (To record dividend income)

Table (4)

  • Cash is an asset and it is increased by $35,000. Therefore, the cash account is debited with $35,000.
  • Dividend income is income and it is increased by $35,000. Therefore, Dividend income account is credited with $35,000.

b.

To determine

Introduction: Investment is the asset that is acquired for the generation of income or return in the long run. Investments are used to create capital for future utilization. The return obtained from investments is used in operations of the business.

To prepare: Journal entries that Company R would record for investment in Company S using the equity method.

b.

Expert Solution
Check Mark

Explanation of Solution

In the books of Company R:

Record of purchase of common stock:

    DateAccount Debit ($)Credit($)
    20X5Investment in Company S Common Stock270,000
    Cash 270,000
    (To record purchase of common stock)

Table (1)

  • Investment in Company S common stock is an asset and it is increased by $270,000. Therefore, Investment in Company S common stock account is debited with $270,000.
  • Cash is an asset and it is decreased by $270,000. Therefore, the cash account is credited with $270,000.

Record dividend income received:

    DateAccount Debit ($)Credit($)
    20X5Cash5,000
    Investment in Company S Common Stock5,000
    (To record dividend income)

Table (2)

  • Cash is an asset and it is increased by $5,000. Therefore, the cash account is debited with $5,000.
  • Investment in Company S common stock is an asset and it is decreased by $5,000. Therefore, Investment in Company S common stock account is credited with $5,000.

Record equity-method income:

    DateAccount Debit ($)Credit($)
    20X5Investment in Company S Common Stock20,000
    Investment in Company S20,000
    (To record equity-method income)

Table (3)

  • Investment in Company S common stock is an asset and it is increased by $20,000. Therefore, Investment in Company S common stock account is debited with $20,000.
  • Investment in Company S is income and it is increased by $20,000. Therefore, Investment in Company S account is credited with $20,000.

Record amortization amount:

    DateAccount Debit ($)Credit($)
    20X5Investment in Company S7,000
    Investment in Company S Common Stock
      ($270,000$200,00010)
    7,000
    (To record amortization amount)

Table (4)

  • Investment in Company S is income and it is decreased by $7,000. Therefore, investment in Company S account is debited with $7,000.
  • Investment in Company S common stock is an asset and it is decreased by $7,000. Therefore, investment in Company S common stock account is credited with $7,000.

Record dividend income received:

    DateAccount Debit ($)Credit($)
    20X6Cash15,000
    Dividend Income15,000
    (To record dividend income)

Table (5)

  • Cash is an asset and it is increased by $15,000. Therefore, the cash account is debited with $15,000.
  • Dividend income is income and it is increased by $15,000. Therefore, Dividend income account is credited with $15,000.

Record equity-method income:

    DateAccount Debit ($)Credit($)
    20X6Investment in Company S Common Stock40,000
    Investment in Company S40,000
    (To record equity-method income)

Table (6)

  • Investment in Company S common stock is an asset and it is increased by $40,000. Therefore, Investment in Company S common stock account is debited with $40,000.
  • Investment in Company S is income and it is increased by $40,000. Therefore, Investment in Company S account is credited with $40,000.

Record amortization amount:

    DateAccount Debit ($)Credit($)
    20X6Investment in Company S7,000
    Investment in Company S Common Stock 7,000
    (To record amortization amount)

Table (7)

  • Investment in Company S is income and it is decreased by $7,000. Therefore, investment in Company S account is debited with $7,000.
  • Investment in Company S common stock is an asset and it is decreased by $7,000. Therefore, investment in Company S common stock account is credited with $7,000.

Record dividend income received:

    DateAccount Debit ($)Credit($)
    20X7Cash35,000
    Investment in Company S Common Stock35,000
    (To record dividend income)

Table (8)

  • Cash is an asset and it is increased by $35,000. Therefore, the cash account is debited with $35,000.
  • Investment in Company S common stock is an asset and it is decreased by $35,000. Therefore, Investment in Company S common stock account is credited with $35,000.

Record equity-method income:

    DateAccount Debit ($)Credit($)
    20X7Investment in Company S Common Stock20,000
    Investment in Company S20,000
    (To record equity-method income)

Table (9)

  • Investment in Company S common stock is an asset and it is increased by $20,000. Therefore, Investment in Company S common stock account is debited with $20,000.
  • Investment in Company S is income and it is increased by $20,000. Therefore, Investment in Company S account is credited with $20,000.

Record amortization amount:

    DateAccount Debit ($)Credit($)
    20X7Investment in Company S7,000
    Investment in Company S Common Stock 7,000
    (To record amortization amount)

Table (10)

  • Investment in Company S is income and it is decreased by $7,000. Therefore, investment in Company S account is debited with $7,000.
  • Investment in Company S common stock is an asset and it is decreased by $7,000. Therefore, investment in Company S common stock account is credited with $7,000.

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