Question

On 1-1-16, Alpha Company purchased 2500 of the 10,000 shares of Bravo Company for $50,000. You use equity method. Purchase price was equal to 25% of Bravo Company's equity. Bravo Company's net income was $100,000 for year 2016 and $200,000 for year 2017. Dividends paid by Bravo were $1 per share in 2016 and $1.50 per share in 2017. Make all required entries on Alpha Company's books.

Answer 1

Journal Entries :

Date	Accounts Titles and description	Debit $	Credit $
1-1-16	Equity investment in Bravo	50000
	Cash		50000
	(purchase on equity basis)
12-31-16	Equity Investment in Bravo	25000
	Net Income in Bravo		25000
	(being recording of equity income)
12-31-16	Cash	2500
	Equity Investment in Bravo		2500
	(being dividend received)

Date	Accounts Titles and description	Debit $	Credit $
12-31-17	Equity Investment in Bravo	50000
	Net Income in Bravo		50000
	(being recording of equity income)
12-31-17	Cash	3750
	Equity Investment in Bravo		3750
	(being dividend received)