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Equity Method for Stock Investment On January 4, Year 1, Ferguson Company purchased 87,500 shares of...

Equity Method for Stock Investment

On January 4, Year 1, Ferguson Company purchased 87,500 shares of Silva Company directly from one of the founders for a price of $64 per share. Silva has 250,000 shares outstanding, including the Daniels shares. On July 2, Year 1, Silva paid $236,000 in total dividends to its shareholders. On December 31, Year 1, Silva reported a net income of $787,000 for the year. Ferguson uses the equity method in accounting for its investment in Silva.

a. Provide the Ferguson Company journal entries for the transactions involving its investment in Silva Company during Year 1.

Year 1, Jan. 4
Year 1, July 2
Year 1, Dec. 31

b. Determine the December 31, Year 1, balance of Investment in Silva Company Stock.
$

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Answer #1

a. Provide the Ferguson Company journal entries for the transactions involving its investment in Silva Company during Year 1.

Year 1, Jan. 4 Investment in Silva Company (87500*64) 5600000
Cash 5600000
Year 1, July 2 Cash (236000*35%) 82600
Investment in Silva Company 82600
Year 1, Dec. 31 Investment in Silva Company (787000*35%) 275450
Income from Investment in Silva Company 275450

b. Determine the December 31, Year 1, balance of Investment in Silva Company Stock.
$5600000+275450-82600 = $5792850

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