Please explain it 2. Please explain it Equity Method for Stock In On January 4,
ID: 2430807 • Letter: P
Question
Please explain it2.
Please explain it Equity Method for Stock In On January 4, Year 1, Ferguson Company purchased 80,000 shares of Silva Company directly from one of the founders for a price of $49 per share. Silva has 250,000 shares outstanding, including the Daniels shares. On July 2, Year 1, Silva paid $196,000 in total dividends to its shareholders. On December 31, Year 1, Slva reported a net income of $747,000 for the year. Ferguson uses the equity method in accounting for its investment in Silva. a. Provide the Ferguson Company journal entries for the transactions involving its t in Silva Company during Year 1 b. Previous Next Check My Work 2 more Chack My Work uees remaning
Explanation / Answer
Equity Method is used to account for associate company.(20%-50%)
Jan 4 Purchase
We record investment in associate initially at cost.
Jul 2 Dividend
Total =196,000
Ferugson Holding in Silva = (80,000/250,000)shares =32%
Share of dividend to ferguson = 196,000 * 32% =62,720
dividends received from the associate is subtracted from the cost of investment
Dec 31 Net Income
Ferguson Share of Net Income = 747,000*32% =239,040
share of the associate's net income adds cost of investment
Balance of silva Stock at 31 Dec
Sept 12
Purchased 12,000shares * $10(inc brokerage) =120,000 Record inc. Brokerage commission
Dec 31
Reducing value of marketable security by crediting account.
unrealized gain (loss) on available-for-sale securities is reported in “Other comprehensive income" of the Balance sheet.
Investment In Silva (80,000 *$49) 3,920,000 Cash/Bank 3,920,000