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15-2 15-03 Equity Method On January 2, Yorkshire Company acquired 31% of the outstanding stock of...

15-2 15-03 Equity Method

On January 2, Yorkshire Company acquired 31% of the outstanding stock of Fain Company for $330,000. For the year ended December 31, Fain Company earned income of $86,000 and paid dividends of $26,000.

Prepare the entries for Yorkshire Company for the purchase of the stock, the share of Fain income, and the dividends received from Fain Company.

Jan. 2 - Purchase

Dec. 31 - Income

Dec. 31 - Dividends
Business   Accounting   
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Answer #1
Date General Journal Debit Credit
Jan. 2 Investment in Stock of Fain Company 330000
Cash 330000
(To record purchase of investment)
Dec. 31 Investment in Stock of Fain Company 26660
Investment income (31% x $86000) 26660
(To record share in income of Fain Company)
Dec. 31 Cash (31% x $26000) 8060
Investment in Stock of Fain Company 8060
(To record dividends received)

Note: Since Yorkshire Company holds more than 20% of the stock of Fain Company, it is deemed to have significant influence over Fain Company and the equity method is used for accounting for the investment.

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