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P1. XYZ Company had the following transactions related to ABC Company over a two-year period: Year...

P1. XYZ Company had the following transactions related to ABC Company over a two-year period: Year 1 1. On January 1, XYZ purchased 35% ownership of ABC Company for $700,000 cash. 2. ABC Company had net income of $70,000 for the year. 3. At year-end, ABC Company paid its shareholders dividends of $60,000. Year 2 1. XYZ Company purchased on January 1 an additional 5% of ABC Company’s stock for $75,000 cash 2. ABC Company had net income of $150,000 for the year. 3. At year-end, ABC company paid its shareholders dividends of $100,000 What amounts will appear on the financial statements? $ AMOUNTS Accounts/Descriptions Year 1 Year 2 B/S I/S SCF Evaluate the performance of your investment. (explain and show supporting amounts/calcs)

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Answer #1

JOURNAL ENTRIES (YEAR 1 )

S.NO. PARTICULARS DEBIT CREDIT
1 INVESTMENT 700000
CASH 700000
2 INVESTMENT 24500
INVESTMENT REVENUE 24500
(700000*35%)
3 CASH 21000
INVESTMENT 21000
(60000*35%)

JOURNAL ENTRIES (YEAR 2)

S.NO. PARTICULARS DEBIT CREDIT
1 INVESTMENT 75000
CASH 75000
2 INVESTMENT 60000
INVESTMENT REVENUE 60000
(150000*40%)
3 CASH 40000
INVESTMENT 40000
(100000*40%)

BALANCE SHEET

year 1 year 2
Current Assets
Cash 6,79,000 35,000
Investments 24,500 60,000
Total 7,03,500 95,000
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