Question

On January 1, Year 5, Blake Corporation purchased 25% of the outstanding common shares of Stergis...

On January 1, Year 5, Blake Corporation purchased 25% of the outstanding common shares of Stergis Limited for $2,150,000.

The following relates to Stergis since the acquisition date:

Year Net Income Other Comprehensive
Income		 Dividends Paid
Year 5 $ 60,200 $12,600 $86,000
Year 6 172,000 34,400 86,000

Required:

(a) Assume that Blake is a public company and the number of shares held by Blake is enough to give it significant influence over Stergis. Prepare all the journal entries that Blake should make regarding this investment in Year 5 and Year 6.

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Answer #1

The investment is recorded using equity Investment Method as the Blake Corporation Holds 25% of the Stergis

Date Particulars Debit Credit
JanYear 5 Dr Investment $2150000
Cr Cash $2150000
(investment made)
Year 5 Dr Investment $15050
Cr Investment Income $15050
(Profit & Loss recognised )
Year 5 Dr Cash $21500
Cr Investment $21500
(Recievd dividend)
Year 6 Dr Investment $43000
Cr Investment Income $43000
(Profit & Loss recognised )
Year 6 Dr Cash $21500
Cr Investment $21500
(Received dividend)
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