Question

On January 2, 2018, MBH Inc. acquired 30% of the voting common stock of Construction Corporation...

On January 2, 2018, MBH Inc. acquired 30% of the voting common stock of Construction Corporation as a long-term investment. Data from Construction Corporation's financial statements for the year ended December 31, 2018, include the following:
Net income $ 153,000
Dividends paid $ 78,000

   
Required:
Prepare any necessary journal entries for MBH at December 31, 2018, under the equity method of accounting for investments. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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Answer #1

Revenue from investment in Construction Corporation = Net income of Construction corporation x Percentage of common stock acquired
= 153,000 x 30%
= $45,900

Share of dividend from Construction corporation = Dividend paid by Construction corporation x Percentage of common stock acquired
= 78,000 x 30%
= $23,400

Date General Journal Debit Credit
December 31, 2018 Cash $23,400
Equity investments - Construction corporation $23,400
( To record dividend income)
December 31, 2018 Equity investments - Construction corporation $45,900
Revenue from investment in Construction corporation $45,900
( To record share of net income of Construction corporation)
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