Question

On January 1, 2017, Wildhorse Corporation purchased 40% of the common shares of Sheffield Company for $201,000. During the year, Sheffield earned net income of $77,000 and paid dividends of $19,250.

Prepare the entries for Wildhorse to record the purchase and any additional entries related to this investment in Sheffield Company in 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
(To record purchase of stock.)
(To record receipt of dividends.)

Answer 1

To record the purchase of investment it will increase the investment account by debiting it and reduce the cash account by crediting it

Record of purchase of stock

Investment in Sheffield account debit. 201,000

To cash account credit. 201,000

Record of dividend received

Dividend received will increase the cash balance and will increase the income by crediting the dividend account.

Cash account debit. 19,250

To Dividend income credit. 19,250

Record of income distributed to shareholders

Income = 40%*77,000 = $30,800

Investment in Sheffield account debit. 30,800

To share of income from Sheffield credit. 30,800

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