Sunshine Ltd purchased 25% of the shares of Relight Ltd on 1 January 20X2 for Sunshine Ltd having significant influence over Relight Ltd. Additional information is provided below: For the year ended 31 December 20X2, Relight Ltd reported profit of $120 000 and revalued its assets upwards by $80 000. • Relight Ltd's total dividends paid out to all shareholders during 20X2 amounted to $60 000. This was paid from profits made in 20X2. • Jordi Ltd is 80% owned by Sunshine Ltd and is Sunshine's subsidiary. . During 20x2, Relight sold $400 000 of inventories to Jordi Ltd and made profit of $150 000. As at 31 December 20X2, 30% of the inventories were still held by Jordi Ltd. D Required: a) Prepare journal entries for Sunshine Ltd in 20X2 to account for the above event using the Equity Method. Use the Reclassification Method to account for the profit and dividends that Sunshine shares from Relight. Note 1) Use the provided journal entry template to enter your answer. 2) Workings/calculations or narrations are NOT required. 3) The template should provide enough space. However, if you find the space is insufficient in the template or encounter a table formatting issue, write your journal entries below the template, and ensure labelling DR or CR. b) What items of the associate are the investor entitled to under the Equity Method as compared with the Cost Method?
Sunshine Ltd purchased 25% of the shares of Relight Ltd on 1 January 20X2 for Sunshine Ltd having significant influence over Relight Ltd. Additional information is provided below: For the year ended 31 December 20X2, Relight Ltd reported profit of $120 000 and revalued its assets upwards by $80 000. • Relight Ltd's total dividends paid out to all shareholders during 20X2 amounted to $60 000. This was paid from profits made in 20X2. • Jordi Ltd is 80% owned by Sunshine Ltd and is Sunshine's subsidiary. . During 20x2, Relight sold $400 000 of inventories to Jordi Ltd and made profit of $150 000. As at 31 December 20X2, 30% of the inventories were still held by Jordi Ltd. D Required: a) Prepare journal entries for Sunshine Ltd in 20X2 to account for the above event using the Equity Method. Use the Reclassification Method to account for the profit and dividends that Sunshine shares from Relight. Note 1) Use the provided journal entry template to enter your answer. 2) Workings/calculations or narrations are NOT required. 3) The template should provide enough space. However, if you find the space is insufficient in the template or encounter a table formatting issue, write your journal entries below the template, and ensure labelling DR or CR. b) What items of the associate are the investor entitled to under the Equity Method as compared with the Cost Method?
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA2: Investments
Section: Chapter Questions
Problem 25E
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Transcribed Image Text:Sunshine Ltd purchased 25% of the shares of Relight Ltd on 1 January 20X2 for cash of $300 000. This purchase resulted in
Sunshine Ltd having significant influence over Relight Ltd.
Additional information is provided below:
• For the year ended 31 December 20X2, Relight Ltd reported profit of $120 000 and revalued its assets upwards by $80 000.
• Relight Ltd's total dividends paid out to all shareholders during 20X2 amounted to $60 000. This was paid from profits made in
20x2.
• Jordi Ltd is 80% owned by Sunshine Ltd and is Sunshine's subsidiary.
During 20X2, Relight sold $400 000 of inventories to Jordi Ltd and made profit of $150 000. As at 31 December 20X2, 30% of the
inventories were still held by Jordi Ltd.
Required:
a) Prepare journal entries for Sunshine Ltd in 20X2 to account for the above event using the Equity Method. Use
the Reclassification Method to account for the profit and dividends that Sunshine shares from Relight.
Note 1) Use the provided journal entry template to enter your answer. 2) Workings/calculations or narrations are NOT required. 3)
The template should provide enough space. However, if you find the space is insufficient in the template or encounter a table
formatting issue, write your journal entries below the template, and ensure labelling DR or CR
b) What items of the associate are the investor entitled to under the Equity Method as compared with the Cost Method?
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