Question

On July 1, 20X4, Pillow Corp. obtained significant influence over Sleep Co. through the purchase of

3,000 shares of Sleep's 10,000 outstanding shares of common stock for $20 per share. On December 15, 20X4, Sleep paid $40,000 in dividends to its common stockholders. Sleep's net income for the year ended December 31, 20X4, was $120,000, earned evenly throughout the year.

Required: From the parent perspective

1. Prepare the journal entry to record the acquisition.
2. Prepare the journal to record the dividends received from sleep.
3. Prepare the journal entry to record the income reported by sleep

Answer 1

	Working Notes: 1
		Total Shares in Sleep's Copnay Outstanding	10000	Shares
		Shares Acquired by Pillow Corp.	3000	Shares
		Shares % of Acquired by Pillow Corp. = (3,000 Shares / 10,000 Shares)	30%
SOLUTION:
Journal Entries
Sr. No.	Date	Account Title and explanation	Debit	Credit
1	July 01, 20X4	Investment in Sleep Co.(3000 Shares X $ 20)	$60,000
		Cash		$60,000
		(To record the purchase of investment)
2	Dec 15, 20X4	Cash ($ 40,000 X 30%)	$12,000
		Investment in Sleep Co.		$12,000
		(To record the receipt of share in dividends)
3	Dec 31, 20X4	Investment in Sleep Co.($ 120,000 X 30%)	$36,000
		Investment Revenue		$36,000
		(To record the revenue in investment )