Question

3.X purchased 40% of Y on January 1, 2019 for $400,000. Y paid dividends of $50,000...

3.X purchased 40% of Y on January 1, 2019 for $400,000. Y paid dividends of $50,000 in each year. Y's income statements for 2019 and 2020 showed the following.

2019 2020
Income (loss) before income taxes $100,000 ($60,000)
Income tax expense (recovery) 40,000 (15,000)
Net income (loss) $60,000 ($45,000)
Other comprehensive income (net of tax) 20,000 25,000
Comprehensive income (loss) $80,000 ($20,000)



At December 31, 2019, the fair value of the investment was $440,000 and at December 31, 2020 the fair value of the investment was $420,000.

Required:

Prepare X's journal entries for 2019 and 2020, assuming that this is a non-strategic investment and is accounted for at fair value through profit and loss (FVTPL).

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Answer #1

Answer:

2019:

Debit

Credit

Investment in Y

$400,000

Cash

$400,000

To record X’s purchase of Y.

Investment in Y

$32,000

Equity method income (40% × 60,000)

$24,000

Other comprehensive income related to associate (40% × 20,000)

$8,000

To record 2019 share of income from associate.

Cash

$20,000

Investment in Y

$20,000

To record receipt of Dividends from Y-2019

2020:

Debit

Credit

Equity method loss ((40% × (45,000))

$18,000

Other comprehensive income related to associate

$10,000

Investment in Y

$8,000

To record share of 2020 loss and OCI from associate

Cash

$20,000

Investment in Y

$20,000

To record receipt of Dividends from Y-2020

.

.

______________

Really hope this helps! Thankyou!

______________

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