Question

On the date of the business combination of Passman Corporation and Slago Company, the following working paper elimination was prepared (in journal entry format):

                                    PASSMAN CORPORATION AND SUBSIDIARY

            Working Paper Elimination

            January 31, 2018

Common Stock                                     100,000

Additional Paid-in Capital                    200,000

Retained Earnings                                 300,000

Inventories- (first-in, first-out cost)    50,000

Plant Assets (net)                                150,000

Goodwill                                              40,000

                            Investment in Slago Company                     840,000

        

Additional Information

1. On January 31, 2018, the remaining economic life of Sago’s plant assets was 10 years, and Slago includes straight-line depreciation in operating expenses.
2. Goodwill was unimpaired on January 31, 2019.
3. Slago declared and paid a dividend of $20,000 to Passman on January 31,2019.
4. Slago had a net income of $90,000 for the fiscal year ended January 31, 2019.

Instructions:

Prepare journal entries for Passman Corporation to record the operating results of Slago Company for the year ended January 31, 2019, under the equity method of accounting. Omit explanations and disregard income taxes.

-please help me

Answer 1

	Equity Method-Recording of Operating Results
Date	Account Titles & Explanation	Debit $	Credit $
31-01-2019	Investment in Slago Company	90,000
	Investment Revenue		90,000
	( To record share of net income of Slago Company )
31-01-2019	Cash	20,000
	Investment in Slago Company		20,000
	( to record dividend received from Slago Company )
31-01-2019	Investment Revenue	15,000
	Investment in Slago Company		15,000
	( 150,000 / 10 )
	( To record depreciation on plant assets of excess value )
31-01-2019	Investment Revenue	50,000
	Investment in Slago Company		50,000
	( to record amortization of Inventories of First in -first out )