Question

In: Accounting

On January 1, 2020, ABC Co. paid $800,000 to acquire common shares of XYZ Co., which...

On January 1, 2020, ABC Co. paid $800,000 to acquire common shares of XYZ Co., which

represented 30% of XYZ Co.’s shares outstanding. The value of XYZ’s net assets was

$1,850,000 on that date. The excess of the purchase price over ABC’s share of XYZ’s net assets

is attributed to unrecorded intangibles with a 20-year life. XYZ earned net income and

comprehensive income of $400,000 in 2020 and paid dividends of $80,000. The investment in

XYZ had a fair value of $1,025,000 at December 31, 2020. XYZ incurred a net loss and

comprehensive loss of $425,000 in 2021 and paid no dividends. At December 31, 2021, the fair

value of the investment was $720,000 and the recoverable amount was $765,000. Assume that

ABC follows IFRS.

Prepare all the journal entries that ABC is required to make related to the XYZ shares in

2020 and 2021, assuming ABC has no significant influence over XYZ, and uses the FV-NI

model for the investment

Prepare all the journal entries that ABC is required to make related to the XYZ shares in

Solutions

Expert Solution

01/01/2020

ABC A/c Dr 240000

To Xyz A/c 240000

(Aquire the shares from Xyz shares ,which is 30% Outstanding)

Net Profit A/c Dr 4,00,000

To Net Loss A/C 4,00,0000

(earned net income and comprehensive income)

Dividend A/c Dr 80,000

To, Net Profit A/c 80,000

( Being paid the dividend $ 80,000)

*31-dec-2020

Net Loss A/c Dr 4,25,000

To Net Profit A/c 4,25,000

( Being Dec 2020 ,the company face the net loss)

Thanking You.......................

ekkarill92 answered 2 years ago
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