Question
In: Accounting
Fredo, Inc., purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2018. Sonny recognized a...
Fredo, Inc., purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2018. Sonny recognized a total of $400,000 net income during 2018, paid $30,000 of dividends to Fredo during 2018, and at December 31, 2018, the market value of the Sonny investment increased to $1,040,000.
Required: Prepare the journal entries necessary to account for the Sonny investment, assuming that Fredo:
(1) Lacks significant influence
(2) Assume that with the 10% purchase Fredo has significant influence over the operating and financial policies of the investee.
Solutions
Expert Solution
| Date | Account Titles and Explanation | Debit | Credit |
| 1 | Investment in Sonny - Common Stock | 1,000,000.00 | |
| Cash | 1,000,000.00 | ||
| (record the purchase o Sonny Common Stock) | |||
| 2 | Cash | 30,000.00 | |
| Investment Revenue | 30,000.00 | ||
| (record the dividend recd from Sonny) | |||
| 3 | Fair Value Adjustment | 40,000.00 | |
| Unrealized Holding Gain / Loss - OCI | 40,000.00 | ||
| (Record the faair value adjustments) | |||
| 4 | No entry for share of Net Profit Earned by Sonny | ||
| Date | Account Titles and Explanation | Debit | Credit |
| 1 | Investment in Sonny - Common Stock | 1,000,000.00 | |
| Cash | 1,000,000.00 | ||
| (record the purchase o Sonny Common Stock) | |||
| 2 | Cash | 30,000.00 | |
| Investment in Sonny - Common Stock | 30,000.00 | ||
| (record the dividend received) | |||
| 3 | Investment in Sonny - Common Stock | 40,000.00 | |
| Equity Income in Sonny | 40,000.00 | ||
| (record the Net Income share of florist) | |||
| 4 | No entry for Fair Value Adjustment | ||
ekkarill92 answered 9 months agoRelated Solutions
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Multiple Choice
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Multiple Choice
$25,440 and $44,760 respectively.
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