EBK ADVANCED FINANCIAL ACCOUNTING
11th Edition
ISBN: 8220102796096
Author: Christensen
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
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
To prepare:
a.
Expert Solution
Explanation of Solution
In the books of Company R:
Record of purchase of common stock:
| Date | Account | Debit ($) | Credit($) |
| 20X5 | Investment in Company S Common Stock | 270,000 | |
| 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 $270,000.
Record dividend income received:
| Date | Account | Debit ($) | Credit($) |
| 20X5 | Cash | 5,000 | |
| Dividend Income | 5,000 | ||
| (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 $5,000.
Record dividend income received:
| Date | Account | Debit ($) | Credit($) |
| 20X6 | Cash | 15,000 | |
| Dividend Income | 15,000 | ||
| (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 $15,000.
Record dividend income received:
| Date | Account | Debit ($) | Credit($) |
| 20X7 | Cash | 35,000 | |
| Dividend Income | 35,000 | ||
| (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 $35,000.
b.
To determine
Introduction: Investment is the asset that is acquired for the generation of income or return in the long run. Investments are used to create capital for future utilization. The return obtained from investments is used in operations of the business.
To prepare: Journal entries that Company R would record for investment in Company S using the equity method.
b.
Expert Solution
Explanation of Solution
In the books of Company R:
Record of purchase of common stock:
| Date | Account | Debit ($) | Credit($) |
| 20X5 | Investment in Company S Common Stock | 270,000 | |
| 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 $270,000.
Record dividend income received:
| Date | Account | Debit ($) | Credit($) |
| 20X5 | Cash | 5,000 | |
| Investment in Company S Common Stock | 5,000 | ||
| (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 $5,000.
Record equity-method income:
| Date | Account | Debit ($) | Credit($) |
| 20X5 | Investment in Company S Common Stock | 20,000 | |
| Investment in Company S | 20,000 | ||
| (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 $20,000.
Record amortization amount:
| Date | Account | Debit ($) | Credit($) |
| 20X5 | Investment in Company S | 7,000 | |
| Investment in Company S Common Stock | 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 $7,000.
Record dividend income received:
| Date | Account | Debit ($) | Credit($) |
| 20X6 | Cash | 15,000 | |
| Dividend Income | 15,000 | ||
| (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 $15,000.
Record equity-method income:
| Date | Account | Debit ($) | Credit($) |
| 20X6 | Investment in Company S Common Stock | 40,000 | |
| Investment in Company S | 40,000 | ||
| (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 $40,000.
Record amortization amount:
| Date | Account | Debit ($) | Credit($) |
| 20X6 | Investment in Company S | 7,000 | |
| 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 $7,000.
Record dividend income received:
| Date | Account | Debit ($) | Credit($) |
| 20X7 | Cash | 35,000 | |
| Investment in Company S Common Stock | 35,000 | ||
| (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 $35,000.
Record equity-method income:
| Date | Account | Debit ($) | Credit($) |
| 20X7 | Investment in Company S Common Stock | 20,000 | |
| Investment in Company S | 20,000 | ||
| (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 $20,000.
Record amortization amount:
| Date | Account | Debit ($) | Credit($) |
| 20X7 | Investment in Company S | 7,000 | |
| 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.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
I need to prepare Journal Entries, then updated T-accounts
Instructions
At a total cost of $6,950,000, Herrera Corporation acquired 229,500 shares of Tran Corp. common stock
as a long-term investment. Herrera Corporation uses the equity method of accounting for this investment.
Tran Corp. has 850,000 shares of common stock outstanding, including the shares acquired by Herrera
Corporation.
Required:
A. Journalize the entries by Herrera Corporation on December 31 to record the following
information (refer to the Chart of Accounts for exact wording of account titles):
1. Tran Corp. reports net income of $974,000 for the current period.
2. A cash dividend of $0.28 per common share is paid by Tran Corp. during the current
period.
B. Why is the equity method appropriate for the Tran Corp. investment?
Pirate Corporation purchased 100 percent ownership of Ship Company on January 1, 20X5, for $271,000. On that date, the book value of Ship’s reported net assets was $209,000. The excess over book value paid is attributable to depreciable assets with a remaining useful life of 10 years. Net income and dividend payments of Ship in the following periods were as shown below:
Year
Net Income
Dividends
20X5
$ 25,000
$ 16,000
20X6
45,000
26,000
20X7
25,000
42,000
Required:
Prepare journal entries on Pirate Corporation’s books relating to its investment in Ship Company for each of the three years, assuming it accounts for the investment using the equity method.
Chapter 4 Solutions
EBK ADVANCED FINANCIAL ACCOUNTING
Ch. 4 - When is the carrying value of the investment...Ch. 4 - What is a differential? How is a differential...Ch. 4 - Prob. 4.3QCh. 4 - Prob. 4.4QCh. 4 - Prob. 4.5QCh. 4 - Prob. 4.6QCh. 4 - Prob. 4.7QCh. 4 - Prob. 4.8QCh. 4 - Prob. 4.9QCh. 4 - Prob. 4.10Q
Ch. 4 - Prob. 4.11QCh. 4 - What determines whether the balance assigned to...Ch. 4 - What does the termpushdown accountingmean?Ch. 4 - Under what conditions is push-down accounting...Ch. 4 - Prob. 4.15QCh. 4 - Reporting Significant Investments in Common Stock...Ch. 4 - Prob. 4.2CCh. 4 - Prob. 4.3CCh. 4 - Prob. 4.4CCh. 4 - Prob. 4.5CCh. 4 - Prob. 4.1ECh. 4 - Prob. 4.2ECh. 4 - Prob. 4.3ECh. 4 - Prob. 4.4ECh. 4 - Prob. 4.5ECh. 4 - Prob. 4.6ECh. 4 - Prob. 4.7ECh. 4 - Prob. 4.8ECh. 4 - Prob. 4.9ECh. 4 - Prob. 4.10.1ECh. 4 - Prob. 4.10.2ECh. 4 - Prob. 4.10.3ECh. 4 - Prob. 4.10.4ECh. 4 - Prob. 4.10.5ECh. 4 - Prob. 4.11.1ECh. 4 - Prob. 4.11.2ECh. 4 - Prob. 4.11.3ECh. 4 - Prob. 4.11.4ECh. 4 - Prob. 4.12ECh. 4 - Prob. 4.13ECh. 4 - Prob. 4.14ECh. 4 - Prob. 4.15ECh. 4 - Prob. 4.16ECh. 4 - Prob. 4.17ECh. 4 - Prob. 4.18.1ECh. 4 - Prob. 4.18.2ECh. 4 - Prob. 4.18.3ECh. 4 - Prob. 4.18.4ECh. 4 - Prob. 4.18.5ECh. 4 - Prob. 4.18.6ECh. 4 - Prob. 4.19ECh. 4 - Prob. 4.30PCh. 4 - Prob. 4.33PCh. 4 - Prob. 4.35PCh. 4 - Prob. 4.36PCh. 4 - Prob. 4.37AP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Please give me answer general accountingarrow_forwardOn January 2, 20Y7, Mikedes Company acquired 30% of the outstanding stock of Violet Company for $720,000. For the year ended December 31, 20Y7, Violet Company earned income of $190,000 and paid dividends of $40,000. On January 31, 20Y8, Mikedes Company sold all of its investment in Violet Company stock for $770,000. Required: Journalize the entries for Mikedes Company for the purchase of the stock, the share of Violet income, the dividends received from Violet Company, and the sale of the Violet Company stock. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will automatically indent a credit entry when a credit amount is entered.arrow_forwardi need the answer quicklyarrow_forward
- Required information Skip to question [The following information applies to the questions displayed below.] As a long-term investment, Painters' Equipment Company purchased 20% of AMC Supplies Incorporated's 400,000 shares for $480,000 at the beginning of the fiscal year of both companies. On the purchase date, the fair value and book value of AMC’s net assets were equal. During the year, AMC earned net income of $250,000 and distributed cash dividends of 25 cents per share. At year-end, the fair value of the shares is $505,000. 2. Assume significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.arrow_forwardRequired information Skip to question [The following information applies to the questions displayed below.] As a long-term investment, Painters' Equipment Company purchased 20% of AMC Supplies Incorporated's 400,000 shares for $480,000 at the beginning of the fiscal year of both companies. On the purchase date, the fair value and book value of AMC’s net assets were equal. During the year, AMC earned net income of $250,000 and distributed cash dividends of 25 cents per share. At year-end, the fair value of the shares is $505,000. Required: 1. Assume no significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.arrow_forwardHow much is the investment income to be reported at the end of the current year? At the beginning of current year, Courage Company acquired 25% of the outstanding shares of an investee at a total cost of P8,400, 000. At the time, the carrying amount of the net assets of Courage Company totaled P28, 800, 000. The investee owned equipment with 5-year remaining life and with a fair value P2, 400, 000 more than carrying amount. The investee owned land with a fair value of Pl, 200, 000 more than carrying amount. During the current year, the investee sold the land. At year-end, the investee reported net income of P6, 000, 000 declared and paid a cash dividend of P3, 600, 000 to shareholders at year-end. The fair value of the investment at year-end is P9, 000, 000. Q1. How much is the investment income to be reported at the end of the current year? Q2. How much is the carrying amount of the investment at year- end? Q3. How much is the implied goodwill from acquisition? Q4. What is the entry…arrow_forward
- Compute for the Profit attributable to Equity Holders of Parent or Controlling Interest in Net Incomearrow_forwardOn January 1, 20X3, Plimsol Company acquired 100 percent of Shipping Corporation's voting shares, at underlying book value. Plimsol uses the cost method in accounting for its investment in Shipping. Shipping's reported retained earnings of $75,000 on the date of acquisition. The trial balances for Plimsol Company and Shipping Corporation as of December 31, 20X4, follow: 24 Item Current Assets Depreciable Assets (net) Investment in Shipping Corporation Other Expenses Depreciation Expense Dividends Declared Current Liabilities Long-Term Debt Common Stock Retained Earnings Sales Dividend Income Plimsol Company Debit Credit $ 160,000 180,000 125,000 85,000 20,000 30,000 Shipping Corporation Debit Credit $ 115,000 135,000 60,000 15,000 15,000 $ 25,000 75,000 100,000 210,000 175,000 15,000 $ 600,000 $ 600,000 $ 340,000 $ 340,000 $ 20,000 50,000 50,000 Required: 1. Provide all consolidating entries required to prepare a full set of consolidated statements for 20X4. 2. Prepare a three-part…arrow_forwardBaghibenarrow_forward
- Alpesharrow_forwardPlease do not Give image formatarrow_forwardPeanut Company acquired 90 percent of Snoopy Company's outstanding common stock for $321,300 on January 1, 20X8, when the book value of Snoopy's net assets was equal to $357,000. Peanut uses the equity method to account for investments. Trial balance data for Peanut and Snoopy as of January 1, 20X8, follow: Assets Cash Accounts Receivable Inventory Investment in Snoopy Company Land Buildings and Equipment Accumulated Depreciation Total Assets Liabilities and Stockholders' Equity Accounts Payable Bonds Payable Common Stock Retained Earnings Total Liabilities and Equity Peanut Company Snoopy Company $ 24,000 34,000 72,000 $ 71,000 66,000 117,000 321,300 231,000 719,000 (392,000) $ 1,133,300 $ 66,000 195,000 481,000 391,300 $ 1,133,300 113,000 210,000 (8,000) $ 445,000 $ 22,000 66,000 195,000 162,000 $ 445,000 Required: a. Prepare the journal entry on Peanut's books for the acquisition of Snoopy on January 1, 20X8. b. Prepare a consolidation worksheet on the acquisition date, January 1,…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning