9) On January 1, 2021, Mathers Corp. acquired a 35% interest in David Inc. for $275,000. On that date, David’s balance sheet disclosed net assets of $400,000. During 2021, David reported net income of $120,000 and paid cash dividends of $37,000. Mathers sold inventory costing $45,000 to David during 2021 for $55,000. David used all of this merchandise in its operations during 2021. Any excess cost over fair value is attributable to an unamortized trademark with a 20-year remaining life.
Required: Prepare all of Mather’s journal entries for 2021 to apply the equity method to this investment.
Mather’s journal entries for 2021
|1||Investment in David Inc||275000|
|2||Investment in David Inc||42000|
|Equity in Investee Income||42000|
|Investment in David Inc||12950|
|4||Equity in Investee Income||6750|
|Investment in David Inc||6750|
|5||Investment in David Inc||3500|
|Equity in Investee Income||3500|
|Less: Value of assets(400000*0.35)||140000|
|Amortization per year||6750|
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