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Required information [The following information applies to the questions displayed below.] As a long-term investment, Painters'...

Required information

[The following information applies to the questions displayed below.]

As a long-term investment, Painters' Equipment Company purchased 20% of AMC Supplies Inc.'s 430,000 shares for $510,000 at the beginning of the fiscal year of both companies. On the purchase date, the fair value and book value of AMC’s net assets were equal. During the year, AMC earned net income of $280,000 and distributed cash dividends of 15 cents per share. At year-end, the fair value of the shares is $538,000.

2. Assume significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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Answer #1

2). Assuming significant influence was acquired, we have to use the equity method of investment.

Journal entries are as follows:-

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