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Hart Corporation purchased 350,000 shares of the outstanding common voting stock of Gotti Corporation on January...

Hart Corporation purchased 350,000 shares of the outstanding common voting stock of Gotti Corporation on January 2, 2021, at a cash cost of $8.00 per share as a short-term investment. At the date of purchase Gotti Corporation had outstanding 1,000,000 shares of common stock (par $1). At year end, December 31, 2021, Gotti reported net income of $200,000 and declared and paid a $50,000 cash dividend. The December 31, 2021, the market value of Gotti's stock was $7.50. Give the journal entries required for Hart Corporation on the following dates:

January 2, 2021:

December 31, 2021:

Business   Accounting   
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Answer #1

Journal entries

Date General Journal Debit Credit
Jan 2 Investment in Gotti Corporation (350000*8) 2800000
Cash 2800000
(To record investment)
Dec 31 Investment in Gotti Corporation (200000*35%) 70000
Income from Investment in Gotti Corporation 70000
(To record net income
Dec 31 Cash (50000*35%) 17500
Investment in Gotti Corporation 17500
(To record dividend)

Note: Investment is (350000/1000000) = 35% So equity method is used

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