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(20 pnts) On January 2, 2020, Pull Corp. paid $516,000 for 24% (96,000 shares) of the...

(20 pnts) On January 2, 2020, Pull Corp. paid $516,000 for 24% (96,000 shares) of the outstanding common stock of Olivia Co. Pull used the equity method to account for the investment. At the end of 2020, the balance in the investment account was $820,000. On January 2, 2021, Pull sold 20,000 shares of Olivia stock for $12 per share. For 2021, Oliver reported income of $188,000 and paid dividends of $30,000.

Required:

(A.) Prepare the journal entry to record the sale of the 20,000 shares.

(B.) After the sale has been recorded, what is the balance in the investment

account?

(C.) What percentage of Olivia Co. stock does Pull own after selling the 20,000 shares?

(D.) Because of the sale of stock, Pull can no longer exercise significant influence over the operations of Olivia. What effect will this have on Pull's accounting for the investment?

(E.) Prepare Pull's journal entries related to the investment for the rest of 2021.

Solutions

Expert Solution

(A)

Journal entry to record sale of 20,000 shares

Particular Debit Credit
Cash account 240000
Profit on sale of investment 69167
Investment in Olivia company account 170833

Cash account = 12 × 20000 which is 240000

Investment in Olivia company account = (820000/96000)×20000 which is 170833 approximately

Profit on sale of investment =240000-170833 which is 69167

(B)

Balance in investment account = beginning balance - investment in Olivia company account sold

Balance in investment account = 820000 - 170833

Balance in investment account after sale = 649167

(C)

Pull corp holds 24% shares of Olivia company.

24% of shares are 96000

Let total shares = X

X × 24% = 96000

X = 96000/24%

X = 400000

Total number of shares = 400000

Shares held by Pullxoep after sale = 76000

Percentage of shares with pull corp= (76000/400000)×100

Percentage of shares with pull corp after sale = 19%

(D)

Pull corp had controling interest over Olivia company before the sale of investment.

So certain accounts are changes or closed when the sale of investment takes place.

Pull corp will derecognize all assets and liabilities at the date when the control is lost from Olivia company.

Derecognize any non controlling interest in Olivia company.

Recognise any fair value consideration received from sale of investment.

Recognising any gain or loss from the transaction.

ekkarill92 answered 1 year ago
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