Question

Austin, Inc., acquired 10 percent of McKenzie Corporation on January 1, 2014 for $313,400. During 2014, McKenzie earned a net income of $287,000 while declaring and paying cash dividends of $108,000. On January 1, 2015, Austin purchased an additional 30 percent of McKenzie for $932,700. The initial 10 percent investment had been maintained at fair value, and the fair value of McKenzie on January 1, 2015 is implied by the second purchase. The equity method will now be applied. During 2015, McKenzie reported income of $368,250 and declared and paid dividends of $138,000. Write the Journal entries that Austin needs to make during year 2015. Note that Austin needs to (1) switch from Fair Value Method to Equity Method on 1/1/2015, and (2) carry the investment in McKenzie in Equity Method afterwards Requirement:

Need the following transactions journalized:

1) Purchase additional 30% of McKenzie's stock

2) Convert available-for-sale securities into Investment in McKenzie Corporation

3) Adjust the investment account to reflect the investee's equity

4) Eliminate the unrealized holding gain under Fair Value Method

5) Recognize McKenzie's Net Income during 2015

6) Record McKenzie's Dividends paid in 2015

use the following list of accounts: Cash, Inventory, Available-for-sale Securities, Trading Securities, Investment in McKenzie Corp., Equity in McKenzie’s Income, Fair Value Adjustments of SAFS, Accumulated Fair Value Adjustments (AOCI), Net Income, Retained Earnings.

Please post and label each entry. Thank you.

Answer 1