1 / 8

Module 7: Intercorporate Investments

Module 7: Intercorporate Investments. Company P purchases 30% of the outstanding common stock of Company S on January 2, 2009 for $400,000 cash. During 2009, Company S reported net income of $300,000 to its shareholders, and declared $100,000 dividends to its shareholders. Required:

axel-montgomery
Télécharger la présentation

Module 7: Intercorporate Investments

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Module 7:Intercorporate Investments

  2. Company P purchases 30% of the outstanding common stock of Company S on January 2, 2009 for $400,000 cash. During 2009, Company S reported net income of $300,000 to its shareholders, and declared $100,000 dividends to its shareholders. Required: Prepare all journal entries necessary (on Company P’s books) to record this investment using the equity method of accounting. Illustration - Equity Method

  3. 1. Acquisition: 2. Dividends declared (100,000 x 30%) 3. Income reported (300,000 x 30%) Journal Entries on P’s Books: L.T. Investment 400,000 Cash 400,000 Div. Receivable 30,000 L.T. Investment 30,000 L. T. Investment 90,000 Income from S 90,000

  4. Prepare the following journal entries for Jackson Company for 2007. Assume there were no other investments prior to the following activities. Feb. 17 - Purchased 500 shares of Medical Company common stock for $20 per share (classified as trading securities): March 31 - Received a $1.20 per share dividend on Medical Company stock: Comprehensive Problem Invest in Medical 10,000 Cash 10,000 Cash 600 Dividend Income 600

  5. April 1 - Purchased 30,000 of the 100,000 outstanding shares of Olde Company common stock at $10 per share. Classification of Investment? June 28 - Received a $1.00 share dividend on the Olde Company stock: Comprehensive Problem Equity investment Invest in Olde 300,000 Cash 300,000 Cash 30,000 Invest. in Olde 30,000

  6. Oct. 1 - Purchased 2,000 of Alpha Company common stock for $15 per share. These shares are classified as available-for-sale. Dec. 31 - Olde Company reported annual earnings of $80,000 to its investors: Comprehensive Problem Invest in Alpha 30,000 Cash 30,000 80,000 x .3 Invest. in Olde 24,000 Income from Olde 24,000

  7. Dec. 31 AJEs - At the end of the year, the following market prices per share were reported: Medical Co. (trading) $25 per share Alpha Co. (AFS) $12 per share Olde Co. (equity) $11 per share AJE for Medical? AJE for Alpha? AJE for Olde? Comprehensive Problem $20 to $25 = $5 gain x 500 shares Invest in Medical 2,500 Unrealized Gain (I/S) 2,500 $15 to $12 = $3 loss x 2,000 shares Unrealized loss (SE) 6,000 Invest. in Alpha 6,000 NO! - equity method - no revaluation

  8. What total effect would the previous transactions have on the income statement for 2007? 3/31 Dividend income + 600 12/31 Income from Olde + 24,000 12/31 Unrealized gain on Med. + 2,500 Total +27,100 What effect would the previous transactions have on other comprehensive income for 2007? 12/31 Unrealized loss on Alpha - 6,000 Comprehensive Problem

More Related