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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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On January 1, 2019, Hill Corporation acquired 40% of the outstanding common stock (400 of 1,000 outstanding shares) of Valley Manufacturing Inc. for $60,000, which equals the book value of Valley. On December 31, 2019, Valley reported net income of $30,000 and declared and paid a cash dividend of SI 1,500.

Required:

1. Prepare the journal entries made by Hill to record the transactions related to its investment in Valley.

2. Give the title and amount of each item (except Cash) related to the investment on the December 31, 2019 balance sheet. Name the balance sheet section in which each item appears.

To determine

Concept introduction:

Equity Method: In equity method we value the investment on the basis of their proportionate share in the assets of the investee company. Equity method applies when there is at least 20% share holding in the company. When there is 20% holding in any company then we have a significant control over the company.

Requirement 1:

To calculate:

Journal entry to record the investment.

Explanation

a. Investment A/c 60000

Cash 60000

(Being Investment purchased in cash.)

b. Cash A/c 11500

Dividend Income A/c 11500

(Being Dividend received in cash...

To determine

Concept introduction:

Equity Method: In equity method we value the investment on the basis of their proportionate share in the assets of the investee company. Equity method applies when there is at least 20% share holding in the company. When there is 20% holding in any company then we have a significant control over the company.

Requirement 2:

To indicate:

The amount of each item related to shown in the balance sheet.

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