Question

AAA acquired 30% of BBB's voting stock on January 1, 2021 for $1,000,000. During 2021, BBB...

AAA acquired 30% of BBB's voting stock on January 1, 2021 for $1,000,000. During 2021, BBB
earned $400,000 and paid dividends of $250,000. AAA’s 30% interest gives the ability to exercise
significant influence over BBB’s operating and financial policies. During 2022, BBB earned
$500,000 and paid cash dividends of $150,000 on April 1 and $150,000 on October 1. On July 1,
2022, AAA sold half of its stock in BBB for $660,000 cash. Prepare adjusting journal entries, if
any, to recognize the sales of this investment on July 1, 2022.

Business   Accounting   
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Answer #1

Carrying amount of the investment in AAA as on 2021 balance sheet

= Purchased price + Income attributed to investment - dividend

=  1000000 + (400000*30%) - (250,000*30% )

= $1045000

Value of Investment on july 1, 2022

= Begnning balance of investment + Income attributed to investment - dividend

= 1,045,000 - (150,000 x 30%) + (500,000 x 50% x 30%)

= $ 1075000

50% was sold , Cost

= 50%*1075000

= $537500

Sold for = $ 660000

Less : Cost = $ 537500

Gain = 122500

journal entry

Date Account name Debit ($) Credit ($)
July 1 Cash 6,60,000
Investment In BBB 5,37,500
Gain on sale of Investment in BBB 1,22,500
(To record sale of investment in BBB and gain on sale)
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