Question

Company A buys 25% of Company B on October 1, 2019
Payment	$           25,000
Company B Net Income for Q4 2019	5,000
Company B Net Loss for Q1 2020	(8,000)
Dividends received by Company A in Q1 2020	2,000
Record the journal entries on:
October 1, 2016:
December 31, 2016:
March 31, 2017:
What's the carrying amount of the investment on Company B on March 31, 2017?

Answer 1

Solution :

Journal Entries - Company A
Date	Particulars	Debit	Credit
1-Oct-19	Investment in company B Dr	$25,000.00
	To Cash		$25,000.00
	(To record purchase of investment)
31-Dec-19	Investment in company B Dr	$1,250.00
	To Investment Income ($5,000*25%)		$1,250.00
	(To record share of income in Company B)
31-Mar-20	Loss on investment Dr ($8,000*25%)	$2,000.00
	To Investment in company B Dr		$2,000.00
	(To record share of Loss in Company B)
31-Mar-20	Cash Dr	$2,000.00
	To Investment in company B Dr		$2,000.00
	(To record dividend received from Company B)

Carrying amount of the investment on Company B on March 31, 2017 = $25,000 + $1,250 - $2,000 - $2,000 = $22,250