Question

On January 2, 2016, Danner Corp. purchased 32,000 shares (40%) of the common stock of Poe...

On January 2, 2016, Danner Corp. purchased 32,000 shares (40%) of the common stock of Poe & Company. The purchase price was $320,000. Danner has significant influence over Poe. No amortization is required. During 2016, Poe reported income of $126,000 and paid dividends of $30,000. On January 2, 2017, Danner sold 4,000 shares for $51,500.

Required:

Compute the balance in Equity Investment at December 31, 2016.

Prepare the journal entry to record the sale of the 4,000 shares.

What was the balance in Equity Investment after the shares were sold

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Answer #1

a)

Purchase cost of Investment 320,000
share in net income [126000*.40] 50400
less:dividend   [30,000*.40] (12,000)
balance in Equity Investment at December 31, 2016. 358,400

2)Value of investment per share :358,400/32000 = $ 11.20 per share

Cost of 4000 shares = 11.20*4000 = $ 44800

Date Account Debit credit
january 2 ,2017 cash 51500
Gain on sale of investment 6700
Equity Investment 44800
[Being investment sold at a gain]

c)Number of shares left after sale= 32000-4000=28000

balance in Equity Investment after the shares were sold : balance in Equity Investment at December 31, 2016- cost of investment sold

= 358400-44800

= $ 313600

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