Accounting for Investment Transaction Subsection (b) Emily Incorporated buys 20
ID: 2478634 • Letter: A
Question
Accounting for Investment Transaction
Subsection (b)
Emily Incorporated buys 20 percent/150,000 shares of the capital stock of Dono Corporation on January 1, 2013, for $2,900,000. Emily Inc plans to hold these shares for an indefinite period of time. Ownership of these shares gives Emily Inc the ability to apply significant influence over Dono Corp.
Using the information given above prepare the applicable journal entries for transactions “(1)” through “(4)” below:
Prepare the entry to account for the acquisition of 20 percent(150,0000 shares) of Dono Corps capital stock.
March 31, 2013 Dono Corp stock is trading at $25 a share.
On December 31, 2013 Dono Corp reports $1,500,000 of net income.
On January 1, 2014 Emily Incorporated receives a cash dividend of $300,000($2 per share) on the Dono Corp Investment.
Explanation / Answer
Date Accounts Title Dr Cr 1-Jan-13 Investment in Dono Corp $2,900,000 Cash $2,900,000 (Being 150000 stock purchased of Dono Corp equity method applies) dec 31 2013 Investment in Dono Corp (1500000*20%) 300000 Equity in Dono Corp Income 300000 (the entry recorded for income portion in Dono Corp) Jan 1 2014 Cash (150000*2) 300000 Investment in Dono Corp 300000 (the dividend is reduced from investment in Dono Corp)