Question

1. Wang owns 30% of Chen and at December 31, 2015 the balance in Wang's investment...

1. Wang owns 30% of Chen and at December 31, 2015 the balance in Wang's investment account equals $400,000. On January 1, 2016 Wang purchases an additional 40% ownership in Chen for $600,000 bringing Wang's ownership up to 70%. Wang will Dr. Investment in Chen for $600,000 and credit cash for $600,000. What additional entry will Wang be required to make to reflect the increase in ownership.

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Answer #1

1) Investment in chen Dr $ 600000

To cash $ 600000

Additional entry

2)  Investment in chen Dr $ 50000

To Gain from Investment $50000

(Being difference in value of opening investment accounted)

Explanations

Initial investment $ 400000 is 30% in 31st December

Additional Investment $ 600000 is 40%

So total value of investment in jan 1,2016 = 600000/40%

= 1500000

so value of 30% of investment on jan 1,2016 is = 1500000×30% = 450000

So, increase in value of investment =450000-400000   = $ 50000

this should be accounted

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