Question

Masako Company acquired 10% of the stocks of Miklos Company for $10 million cash on 1/1/20X1. Miklos Company reported a net income of $8 million for the period 1/1/20X1 to 12/31/20X1. Miklos Company also declared and paid a total cash dividend of $4 million to all of its shareholders. For the year 20X1, show all the entries that Masako Company will make related to the above transactions, assuming that it uses the market method.

Answer 1

Solution:

Date	Account title and explanation	Debit	Credit
20X1	Investment in Miklos Company	$       10,000,000
	Cash		$    10,000,000
	[To equity investment made]
20X1	Cash (4,000,000*10%)	$             400,000
	Dividend Revenue		$          400,000
	[To record dividends]

Notes:

1) Under market method, no need to write entry at the time of net income report.