Equity method journal entries (price greater than book
value)
An investor purchases a 30% interest in an investee company, and
the investor concludes that it can exert significant influence over
the investee. The book value of the investee’s Stockholders’ Equity
on the acquisition date is $600,000, and the investor purchases its
30% interest for $234,000. The investor is willing to pay the
purchase price because the investee owns an unrecorded (internally
developed) patent that the investor estimates is worth $180,000.
The patent has a remaining useful life of 10 years. Subsequent to
the acquisition, the investee reports net income of $135,000, and
pays a cash dividend to the investor of $13,000. At the end of the
first year, the investor sells the Equity Investment for $292,500.
Prepare all of the required journal entries to account for this
Equity Investment during the year.
General Journal | ||
---|---|---|
Description | Debit | Credit |
AnswerCashEquity incomeEquity investmentGain on saleLoss on sale | Answer | Answer |
AnswerCashEquity incomeEquity investmentGain on saleLoss on sale | Answer | Answer |
To record purchase of investment. | ||
AnswerCashEquity incomeEquity investmentGain on saleLoss on sale | Answer | Answer |
AnswerCashEquity incomeEquity investmentGain on saleLoss on sale | Answer | Answer |
To record equity income. | ||
AnswerCashEquity incomeEquity investmentGain on saleLoss on sale | Answer | Answer |
AnswerCashEquity incomeEquity investmentGain on saleLoss on sale | Answer | Answer |
To record receipt of cash dividend. | ||
AnswerCashEquity incomeEquity investmentGain on saleLoss on sale | Answer | Answer |
AnswerCashEquity incomeEquity investmentGain on saleLoss on sale | Answer | Answer |
To record amortization expense. | ||
AnswerCashEquity incomeEquity investmentGain on saleLoss on sale | Answer | Answer |
AnswerCashEquity incomeEquity investmentGain on saleLoss on sale | Answer | Answer |
Equity investment | Answer | Answer |
To record sale of investment. |
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