ABC Company owns 100% of XYZ Company's outstanding shares, which were 30,000 shares. On December 31, 2017, the investment account reflected a balance of $600,000. The investment account is maintained in the internal records of ABC using the equity method. Amortization on this acquisition amounted to $1,000 per year that related to a patent that was amortized over 10 years since January 15, 2015. On July 1, 2018, ABC Company sold 70% of the outstanding shares to another company for $500,000 cash. On that date, the shares were trading at $10 a share. After this event, ABC Company cannot control the operations of XYZ Company and thus has to use the equity method to account for its investments. In 2018, XYZ Company earned $150,000 and paid dividends of $40,000. Assume net income and dividends occur evenly during the year. Required: Prepare the required entry(ies) on July 1st, 2018.
ABC Company owns 100% of XYZ Company's outstanding shares, which were 30,000 shares. On December 31, 2017, the investment account reflected a balance of $600,000. The investment account is maintained in the internal records of ABC using the equity method. Amortization on this acquisition amounted to $1,000 per year that related to a patent that was amortized over 10 years since January 15, 2015. On July 1, 2018, ABC Company sold 70% of the outstanding shares to another company for $500,000 cash. On that date, the shares were trading at $10 a share. After this event, ABC Company cannot control the operations of XYZ Company and thus has to use the equity method to account for its investments. In 2018, XYZ Company earned $150,000 and paid dividends of $40,000. Assume net income and dividends occur evenly during the year. Required: Prepare the required entry(ies) on July 1st, 2018.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter13: Investments And Long-term Receivables
Section: Chapter Questions
Problem 8MC
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