Question

1. On January 1, 2018 Ivan Corporation purchased $300,000 shares of common stock in JJ, Inc. The investment is a 40% interest in JJ, Inc. During 2018, JJ Inc., paid total dividends of $20,000 and reported total net income of $800,000. Using the equity method, prepare Ivan’s journal entries to record the following; (a) record the initial investment, (b) record dividends received, and (c) the year-end investment income.

Answer 1

Journal

Date	Account Title	Debit	Credit
Jan. 1 (a)	Stock investments	300,000
	Cash		300,000
	( To record investment purchase)
Dec. 31 (b)	Cash	8,000
	Stock investments ( 20,000 x 40%)		8,000
	( To record divided received from JJ inc.)
Dec. 31 (c)	Stock investments ( 800,000 x 40%)	320,000
	Revenue from investment in JJ inc,		320,000
	( To record investment income from JJ inc.)

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