On January 1, 2018, Colfax Corporation purchased 25% of the outstanding voting s
ID: 2562599 • Letter: O
Question
On January 1, 2018, Colfax Corporation purchased 25% of the outstanding voting shares of Yakima Supplies common stock for $210,000 cash. On that date, Yakima's book value and fair value were both $840,000. The equity method is deemed appropriate for this investment because Colfax exercises significant influence over Yakima. Yakima's net income reported on December 31, 2018, was $80,000. During 2018, Yakima also paid cash dividends in the amount of $24,000.
Required:
Prepare the journal entries necessary to record the above information on Colfax Corporation's books during 2018, including explanations that include calculations.
Explanation / Answer
Date
Account Titles & Explanation
Debit ($)
Credit ($)
2018
January 1
Investment in Yakima Supplies
210000
Cash
210000
(To record purchase of 25% outstanding shares of Yakima Supplies.)
December 31
Investment in Yakima Supplies
20000
Equity in Investee Income
20000
(To record 25% income of Yakima Supplies)
December 31
Cash
6000
Investment in Yakima Supplies
6000
(To record receipt of cash dividend)
Wprking Note:
1. Colfax corporation share in the income of Yakima Supplies ($80000 * 25 / 100) = $20000
2. Amount of dividend received will be ($24000 * 25 / 100) = $6000
Date
Account Titles & Explanation
Debit ($)
Credit ($)
2018
January 1
Investment in Yakima Supplies
210000
Cash
210000
(To record purchase of 25% outstanding shares of Yakima Supplies.)
December 31
Investment in Yakima Supplies
20000
Equity in Investee Income
20000
(To record 25% income of Yakima Supplies)
December 31
Cash
6000
Investment in Yakima Supplies
6000
(To record receipt of cash dividend)