Question

In: Accounting

Fredo, Inc., purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2018. Sonny recognized a...

Fredo, Inc., purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2018. Sonny recognized a total of $310,000 net income during 2018, paid $21,000 of dividends to Fredo during 2018, and at December 31, 2018, the market value of the Sonny investment increased to $1,031,000.

Required: Prepare the journal entries necessary to account for the Sonny investment, assuming that Fredo

(1) lacks significant influence

a.Record the entry for investment in Sonny Enterprises.

b.Record the entry for cash dividend received.

c.Record the net unrealized holding gain or loss for an available-for-sale investment.

Required :(2) Has significant influence over the operating and financial policies of the investee.

a.Record the entry for investment in Sonny Enterprises.

b. Record the revenue from Sonny Enterprise during 2018.

c. Record the receipt of dividend during 2018

Solutions

Expert Solution

(1) Lacks significant influence

No. Date General Journal Debit Credit
a. January 1, 2018 Equity investment 1000000
Cash 1000000
(To record investment in Sonny Enterprises)
b. December 31, 2018 Cash 21000
Dividend revenue 21000
(To record dividend received)
c. December 31, 2018 Fair value adjustment ($1031000 - $1000000) 31000
Unrealized holding gain or loss-equity 31000
(To record investment at fair value)

(2) Has significant influence

No. Date General Journal Debit Credit
a. January 1, 2018 Equity investment 1000000
Cash 1000000
(To record investment in Sonny Enterprises)
b. December 31, 2018 Equity investment 31000
Investment income (10% x $310000) 31000
(To record revenue from Sonny Enterprises)
c. December 31, 2018 Cash 21000
Equity investment 21000
(To record dividend received)

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Fredo, Inc., purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2018. Sonny recognized a...
Fredo, Inc., purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2018. Sonny recognized a total of $340,000 net income during 2018, paid $24,000 of dividends to Fredo during 2018, and at December 31, 2018, the market value of the Sonny investment increased to $1,034,000. Required: Prepare the journal entries necessary to account for the Sonny investment, assuming that Fredo (1) lacks significant influence or (2) has significant influence over the operating and financial policies of the investee. Required...
Fredo, Inc., purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2018. Sonny recognized a...
Fredo, Inc., purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2018. Sonny recognized a total of $400,000 net income during 2018, paid $30,000 of dividends to Fredo during 2018, and at December 31, 2018, the market value of the Sonny investment increased to $1,040,000. Required: Prepare the journal entries necessary to account for the Sonny investment, assuming that Fredo: (1) Lacks significant influence (2) Assume that with the 10% purchase Fredo has significant influence over the operating and...
Fredo, Inc., purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2021. Sonny recognized a...
Fredo, Inc., purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2021. Sonny recognized a total of $310,000 net income during 2021, paid $21,000 of dividends to Fredo during 2021, and at December 31, 2021, the market value of the Sonny investment increased to $1,031,000. Required: Prepare the journal entries necessary to account for the Sonny investment, assuming that Fredo (1) does not have significant influence or (2) does have significant influence over the operating and financial policies of...
4. On January 1, 2019, Roberts Inc. purchased 10% of the outstanding 1,000,000 common shares of...
4. On January 1, 2019, Roberts Inc. purchased 10% of the outstanding 1,000,000 common shares of Sunk for $200,000. Roberts Inc. considers this investment to be a non-strategic investment. At the December 31, 2020-year end, the fair value of this investment was $208,000. Sunk's profit in 2020 was $100,000. Sunk paid a dividend of $.60 per common share. On January 1, 2021, Robert decided to buy an additional 25% of Sunk's 1,000,000 common shares for $500,000. This second purchase allowed...
1. Cutter Enterprises purchased equipment for $72,000 on January 1, 2018. The equipment is expected to...
1. Cutter Enterprises purchased equipment for $72,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $6,000. Using the sum-of-the-years'-digits method, depreciation for 2019 and book value at December 31, 2019, would be: Multiple Choice $19,200 and $30,800 respectively. $19,200 and $28,800 respectively. $17,600 and $26,400 respectively. $17,600 and $32,400 respectively. 2. Cutter Enterprises purchased equipment for $66,000 on January 1, 2018. The equipment is expected to have a five-year life...
On January 1, 2018, for $18.7 million, Cenotaph Company purchased 10% bonds, dated January 1, 2018,...
On January 1, 2018, for $18.7 million, Cenotaph Company purchased 10% bonds, dated January 1, 2018, with a face amount of $20.7 million. For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31 . Required: 1. Prepare the journal entry to record interest on June 30, 2018, using the effective interest method. 2. Prepare the journal entry to record interest on December 31, 2018, using the effective interest...
Cutter Enterprises purchased equipment for $60,000 on January 1, 2018. The equipment is expected to have...
Cutter Enterprises purchased equipment for $60,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $3,600. Using the sum-of-the-years'-digits method, depreciation for 2018 and book value at December 31, 2018, would be: (Do not round depreciation rate per year)
Cutter Enterprises purchased equipment for $96,000 on January 1, 2018. The equipment is expected to have...
Cutter Enterprises purchased equipment for $96,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $4,500. Using the sum-of-the-years'-digits method, depreciation for 2019 and book value at December 31, 2019, would be?
Cutter Enterprises purchased equipment for $102,000 on January 1, 2018. The equipment is expected to have...
Cutter Enterprises purchased equipment for $102,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $6,600. Using the sum-of-the-years'-digits method, depreciation for 2019 and book value at December 31, 2019, would be: (Do not round depreciation rate per year) Multiple Choice $25,440 and $44,760 respectively. $25,440 and $38,160 respectively. $27,200 and $40,800 respectively. $27,200 and $34,200 respectively.
Appling Enterprises issued 10% bonds with a face amount of $540,000 on January 1, 2018. The...
Appling Enterprises issued 10% bonds with a face amount of $540,000 on January 1, 2018. The bonds sold for $496,675 and mature in 2037 (20 years). For bonds of similar risk and maturity the market yield was 11%. Interest is paid semiannually on June 30 and December 31. Appling determines interest expense at the effective rate. Appling elected the option to report these bonds at their fair value. The fair values of the bonds at the end of each quarter...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT