Question

On January 1, 2012, Doe Corporation purchased 3,000 shares of the 10,00 common shares outstanding of...

On January 1, 2012, Doe Corporation purchased 3,000 shares of the 10,00 common shares outstanding of Ray Company for $15.00 per share and obtained significant influence. Doe amortizes its patents over 10 years. Ray's 12/31/15, condensed balance sheet is shown here:

Current Assets $10,000

Fixed assets (net) 100,000

Patents (net) 40,000

Liabilities 50,000

Common stock, no par 30,000

Retained Earnings 70,000

Doe was unable to deterine the fair value of Ray's identifible net assets shown on the preceeding balance sheet. It did, however, determine that Ray uses the straight-line method (no residual value) to depreciate its fixed assets and to amortize its patents over 20 years and 10 years, respecively. At the end of 2016, Ray disclosed the following the condensed incoe statement and retained earnings statement for 2016:

Revenues $100,000

Expenses (68,000)

Net Income 32,000

Beg. Retained Earnings 70,000

Add: Net Income 32,000

Less: Cash Dividends (20,000)

Ending: Retained Earnings 82,000

Required:

Prepare all the 2016 journal entries that Doe should make related to this investment. Show and label all supporting calculations.

Business   Accounting   
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Answer #1

JOURNAL ENTRIES IN THE BOOKS OF DOE CORPORATION FOR THE YEAR 2016

Note: Since Doe Corporation acquired more than 20% (3000/10000 =30%) of stock of Ray Company and also has significant influence, equity method of accounting is used here.

Date Particulars Debit Credit
12/31/2016 Investment in Ray Company debit 9600
To Investment Revenue 9600
(Accounting of share of Net Income of Ray
Company (32000*30%))
12/31/2016 Investment Revenue debit 9600

To Net Income

 9600
(Transferring Investment revenue to Net income
statement of Doe Corporation)
12/31/2016 Cash debit 6000
To Investment in Ray Company 6000
(Accounting receipt of dividend from Ray Co.
(20000*30%)
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