Corporate Financial Accounting
14th Edition
ISBN: 9781305653535
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Question
Chapter D, Problem D.6EX
To determine
Equity investments: Equity investments are stock instruments which claim ownership in the investee company and pay a dividend revenue to the investor company.
Equity method: Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
To journalize: The stock investment transactions for Company Y, under the equity method
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Equity Method
On January 2, Yorkshire Company acquired 32% of the outstanding stock of Fain Company for $380,000. For the year ended December 31, Fain Company earned income of $99,000 and paid dividends of $30,000.
Prepare the entries for Yorkshire Company for the purchase of the stock, the share of Fain income, and the dividends received from Fain Company.
Jan. 2 - Purchase
Dec. 31 - Income
Dec. 31 - Dividends
Equity MethodOn January 2, Yorkshire Company acquired 28% of the outstanding stock of Fain Company for $290,000. For the year ended December 31, Fain Company earned income of $75,000 and paid dividends of $23,000.Prepare the entries for Yorkshire Company for the purchase of the stock, the share of Fain income, and the dividends received from Fain Company.Jan. 2 - Purchase
Dec. 31 - Income
Dec. 31 - Dividends
On January 2, Cohan Company acquired 40% of the outstanding stock of Sanger Company for $677,000. For the year ended December 31, Sanger Company earned income of $149,000 and paid dividends of $27,500.
Prepare the entries for Cohan Company for the purchase of the stock, the share of Sanger income, and the dividends received from Sanger Company. Refer to the Chart of Accounts for exact wording of account titles.
CHART OF ACCOUNTS
Cohan Company
General Ledger
ASSETS
110
Cash
111
Petty Cash
120
Accounts Receivable
121
Allowance for Doubtful Accounts
131
Notes Receivable
132
Interest Receivable
141
Merchandise Inventory
145
Office Supplies
161
Investment in Sanger Company Stock
165
Valuation Allowance for Trading Investments
166
Valuation Allowance for Available-for-Sale Investments
181
Land
193
Office Equipment
194
Accumulated Depreciation-Office Equipment
LIABILITIES
210
Accounts Payable
221
Notes Payable
231
Interest…
Chapter D Solutions
Corporate Financial Accounting
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