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.

Question

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Answer 1

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 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

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 ($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:

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.

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Answer 2

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 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

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 ($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:

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.

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Answer 3

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 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

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 ($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:

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.

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Answer 4

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 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

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 ($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:

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.

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Answer 5

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

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 ($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:

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.

Answer 6

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

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.

Answer 7

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.

Answer 8

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.

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

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 ($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:

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.

Answer 13

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.

Answer 14

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 ($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:

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.