Matrix, Inc. acquired 20% of Neo Enterprises for $500,000 on January 1, 2015. The fair value and book value of 20% of Neo's identifiable net assets was $500,000 and $480,000 on that date, and the difference was attributable to assets that would be depreciated over 10 years. During 2015 Neo recognized net income of $200,000 and paid dividends of $100,000. Neo had a total fair value of $528,000 as of December 31, 2015.Required: Prepare the journal entries necessary to account for the Neo investment, assuming that Matrix accounts for that investment as elects the fair-value option.  Show entries for the purchase of the investment, recognition of net income, receipt of dividends, and adjustment at year-end, as appropriate. Indicate whether gains or losses (realized, unrealized) are reported on the income statement or other comprehensive income.

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Asked Dec 8, 2019
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Matrix, Inc. acquired 20% of Neo Enterprises for $500,000 on January 1, 2015. The fair value and book value of 20% of Neo's identifiable net assets was $500,000 and $480,000 on that date, and the difference was attributable to assets that would be depreciated over 10 years. During 2015 Neo recognized net income of $200,000 and paid dividends of $100,000. Neo had a total fair value of $528,000 as of December 31, 2015.

Required: Prepare the journal entries necessary to account for the Neo investment, assuming that Matrix accounts for that investment as elects the fair-value option.  Show entries for the purchase of the investment, recognition of net income, receipt of dividends, and adjustment at year-end, as appropriate. Indicate whether gains or losses (realized, unrealized) are reported on the income statement or other comprehensive income.

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Debit (S) Credit (S) Accounts title and explanation Investment Date $500,000 S500,000 Cash (To record the purchase of investments) Cash (20% of $100,000 dividends) $20,000 Investment income $20,000 (To record the 20% share in dividends)

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