Capital Corporation purchased 100 percent of Cook Company's stock on January 1, 20X4, for $340,000. On...

Capital Corporation purchased 100 percent of Cook Company's stock on January 1, 20X4, for $340,000. On that date, Cook reported net assets with a historical cost of $300,000 and a fair value of $340,000. The difference was due to the increased value of buildings with a remaining life of 10 years. During 20X4 and 20X5 Cook reported net income of $10,000 and $20,000 and paid dividends of $6,000 and $9,000, respectively.

(b)	Assuming that Capital Corporation uses the cost method in accounting for its ownership of Cook Company. Prepare the journal entries that Capital recorded in 20X4 and 20X5. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

(a)	Assuming that Capital Corporation uses the equity method in accounting for its ownership of Cook Company. Prepare the journal entries that Capital recorded in 20X4 and 20X5. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Expert Solution

Journal entries recorded by capital corp using equity method
Date	Particulars	Debit	Credit
20X4	Investment in cook co stock	$ 3,40,000.00
	cash		$ 3,40,000.00
	(to record purchase )

	Cash	$ 6,000.00
	investment in cook co stock		$ 6,000.00
	(to reord dividend)

	Investment in cook co stock	$ 10,000.00
	income from cook co		$ 10,000.00
	(to record equity)

	income from cook company	$ 4,000.00
	investment in cook co stock		$ 4,000.00
	(340000-300000)/10yr

20X5	CASH	$ 9,000.00
	Investment in cook co stock		$ 9,000.00
	(to reord dividend)

	investment in cook co stock	$ 20,000.00
	income from cook co		$ 20,000.00
	(to record equity method income)

	income from cook co	$ 4,000.00
	investment in cook co stock		$ 4,000.00
	(to record amortize difference)

b) Journal entries recorded by capital corp using cost method
20X4	Investment in cook co stock	$ 3,40,000.00
	cash		$ 3,40,000.00
	(to record purchase)

	Cash	$ 6,000.00
	dividend income		$ 6,000.00
	(to record dividend income )

	cash	$ 9,000.00
	dividend income		$ 9,000.00
	(to record dividend income from cook co)

ekkarill92 answered 1 year ago

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