On January 1, 2018, Alamar Corporation acquired a 39 percent interest in Burks,
ID: 2595852 • Letter: O
Question
On January 1, 2018, Alamar Corporation acquired a 39 percent interest in Burks, Inc., for $228,000. On that date, Burks's balance sheet disclosed net assets with both a fair and book value of $327,000. During 2018, Burks reported net income of $79,000 and declared and paid cash dividends of $29,000. Alamar sold inventory costing $26,000 to Burks during 2018 for $42,000. Burks used all of this merchandise in its operations during 2018. Prepare all of Alamar's 2018 journal entries to apply the equity method to this investment.
Explanation / Answer
Journal Entries
January 1, 2018
Investment in Burks Inc. Dr 127530 (327000*39%)
Goodwill Dr 100470
Cash Cr 228000
Receipt of dividend
Cash Dr 11310 (29000*39%)
Dividend Income Cr 11310
Sale of inventory
Cash Dr 42000
Sales Cr 42000
(Burks has used all of this merchandise in its operations during 2018, so, it will be considered as normal sale by Alamar Corporation)
Share of net profit
Investment in Burks Inc. Dr 30810 (79000*39%)
Share of profit of Burks Inc. Cr 30810