Question

4. On January 2, 2016, Danner Corp. purchased 32,000 shares (40%) of the common stock of...

4. On January 2, 2016, Danner Corp. purchased 32,000 shares (40%) of the common stock of Poe & Company. The purchase price was $320,000. Danner has significant influence over Poe. No amortization is required. During 2016, Poe reported income of $126,000 and paid dividends of $30,000. On January 2, 2017, Danner sold 4,000 shares for $51,500.

Required:

a. Compute the balance in Equity Investment at December 31, 2016.

b. Prepare the journal entry to record the sale of the 4,000 shares.

c.    What was the balance in Equity Investment after the shares were sold

Homework Answers

Answer #1

a) Balance in Equity investment at December 31,2016

Initial investment 320000
Add: Net income (126000*40%) 50400
Less: Dividend (30000*40%) -12000
Equity investment at December 31,2016 358400

b) Journal entry

Date account and explanation Debit credit
Cash 51500
Gain on sale of investment 6700
Investment in Stock (358400/32000*4000) 44800
(To record sale of shares)

c) Balance in Equity investment after the shares were sold = 358400*28000/32000 = 313600

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