Question

For each of the following scenarios, prepare dated journal entries on the acquiring company’s books for the investment from acquisition to disposal. Ignore income taxes.

a) On March 1, 20X7, Rondeau Ltd., a private enterprise, acquired 1,000 shares of Hoi Co. for $30,000. This investment represents a 15% interest in Hoi. Rondeau uses the cost method to record the investment. On November 30, 20X7, Hoi paid a $25,000 dividend to its shareholders. At February 28, 20X8, Hoi’s shares were valued at $40/share and Hoi reported net income of $150,000 for the year. On April 15, 20X8, Rondeau sold the shares for $53,000. Both Rondeau and Hoi have February 28th year-ends.

Answer 1

Journal Entries:
Date	Account Titles	Debit$	Credit$
Mar 1 20X7	Investment in Hoi Co.	30000
	Cash		30000
	(purchase of Hoi Co. & booked on cost)
Nov 30, 20X7	Cash	3750
	Dividend revenue		3750
	(dividend = 25000*15%)
Feb 28, 20X8	Investment in Hoi Co.	10000
	Unrealised gain		10000
	(being investment revalued )
April 15, 20X8	Cash	53000
	Unrealised gain	10000
	Investment in Hoi Co.		40000
	Income on the sale of investment		23000
	(being sale of investment in Hoi)