Question

Suppose that on January ?6, 2018?, Westfall Motors paid $ 450 comma 000 comma 000 for its 30 % investment in Power Motors. Westfall has significant influence over Power after the purchase. Assume Power earned net income of $ 50 comma 000 comma 000 and paid cash dividends of $ 15 comma 000 comma 000 to all outstanding stockholders during 2018. ?(Assume all outstanding stock is voting? stock.) Read the requirements LOADING.... Requirement 1. What method should Westfall Motors use to account for the investment in Power ?Motors? Give your reasoning. Westfall Motors should use the ? available-for-sale consolidation equity held-to-maturity method to account for its investment in Power Motors because the investment ? creates a parent-subsidiary relationship between Westfall Motors and Power Motors. in Power is a debt security that Westfall Motors plans to hold to maturity. represents a 30% ownership of Power Motors and Westfall Motors has significant influence over Power Motors. Requirement 2. Journalize all required 2018 transactions related to Westfall ?Motors's Power investment. Include an explanation for each entry. ?(Record debits? first, then credits. Select the explanation on the last line of the journal entry table. If no entry is? required, select? "No entry? required" on the first line of the Accounts and Explanation column and leave the remaining cells? blank.) Westfall Motors paid $ 450 comma 000 comma 000 for its 30 % investment in Power Motors. Date Accounts and Explanation Debit Credit 2018 Jan. 6 Power paid cash dividends of $ 15 comma 000 comma 000 to all outstanding shareholders during 2018. Date Accounts and Explanation Debit Credit 2018 Power earned net income of $ 50 comma 000 comma 000 during 2018. Date Accounts and Explanation Debit Credit 2018 Requirement 3. Post all 2018 transactions to the investment? T-account. What is its balance after all the transactions are? posted? How would this balance be classified on the balance sheet dated December? 31, 2018?? Begin by selecting the investment account and posting the 2018 transactions to the investment? T-account. Calculate the balance after all the transactions are posted. How would this balance be classified on the balance sheet dated December? 31, 2018?? This balance would be classified as ? a current asset a current liability a long-term asset a long-term liability accumulated other comprehensive income on the balance sheet dated December? 31, 2018. please show thouroughness

Answer 1

1. Westfall shall use the quity method of accounting for invenstment in Power Motors.

This is because with 30% interest , Westfall Motors has significant influence over Power Motors.

2 Journal entries:

.

Date	Account Title	Debit	Credit
1/6/2018	Investment in Power Motors	450000000
	Cash		450000000
	(Cash by Westfall Motors in Power Motors for 30% interest)
12/31/2018	Investment in Power Motors	15000000
	Equity icome from Power Motors		15000000
	(30% interest in the net income of Power Motors)
12/31/2018	Cash	1500000
	Investment in Power Motors		1500000
	(Dvidends received from Power Motors)

3.

Investment in Power Motors
Date	Debit	Date	Credit
1/1/2018	450000000
12/31/2018	15000000
12/31/2018		1500000
	465000000	1500000
End.Bal.	463500000

The investment will be classified as a long-term asset.