EBK ADVANCED FINANCIAL ACCOUNTING
11th Edition
ISBN: 8220102796096
Author: Christensen
Publisher: YUZU
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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
To prepare:
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 | 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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Instructions
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Chapter 4 Solutions
EBK ADVANCED FINANCIAL ACCOUNTING
Ch. 4 - When is the carrying value of the investment...Ch. 4 - What is a differential? How is a differential...Ch. 4 - Prob. 4.3QCh. 4 - Prob. 4.4QCh. 4 - Prob. 4.5QCh. 4 - Prob. 4.6QCh. 4 - Prob. 4.7QCh. 4 - Prob. 4.8QCh. 4 - Prob. 4.9QCh. 4 - Prob. 4.10Q
Ch. 4 - Prob. 4.11QCh. 4 - What determines whether the balance assigned to...Ch. 4 - What does the termpushdown accountingmean?Ch. 4 - Under what conditions is push-down accounting...Ch. 4 - Prob. 4.15QCh. 4 - Reporting Significant Investments in Common Stock...Ch. 4 - Prob. 4.2CCh. 4 - Prob. 4.3CCh. 4 - Prob. 4.4CCh. 4 - Prob. 4.5CCh. 4 - Prob. 4.1ECh. 4 - Prob. 4.2ECh. 4 - Prob. 4.3ECh. 4 - Prob. 4.4ECh. 4 - Prob. 4.5ECh. 4 - Prob. 4.6ECh. 4 - Prob. 4.7ECh. 4 - Prob. 4.8ECh. 4 - Prob. 4.9ECh. 4 - Prob. 4.10.1ECh. 4 - Prob. 4.10.2ECh. 4 - Prob. 4.10.3ECh. 4 - Prob. 4.10.4ECh. 4 - Prob. 4.10.5ECh. 4 - Prob. 4.11.1ECh. 4 - Prob. 4.11.2ECh. 4 - Prob. 4.11.3ECh. 4 - Prob. 4.11.4ECh. 4 - Prob. 4.12ECh. 4 - Prob. 4.13ECh. 4 - Prob. 4.14ECh. 4 - Prob. 4.15ECh. 4 - Prob. 4.16ECh. 4 - Prob. 4.17ECh. 4 - Prob. 4.18.1ECh. 4 - Prob. 4.18.2ECh. 4 - Prob. 4.18.3ECh. 4 - Prob. 4.18.4ECh. 4 - Prob. 4.18.5ECh. 4 - Prob. 4.18.6ECh. 4 - Prob. 4.19ECh. 4 - Prob. 4.30PCh. 4 - Prob. 4.33PCh. 4 - Prob. 4.35PCh. 4 - Prob. 4.36PCh. 4 - Prob. 4.37AP
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