Question
In: Accounting
Davis Corporation acquired 40% of the voting common stock of ABC, Inc. on January 1, 20X2,...
Davis Corporation acquired 40% of the voting common stock of ABC,
Inc. on January 1, 20X2, for $250,000, giving Davis Corporation
significant influence over the operations of ABC, Inc. For the year
ended December 31, 20X2, ABC, Inc.’s audited financial statements
reported a net income of $50,000. Also, ABC, Inc. declared and paid
total dividends to its shareholders of $25,000 on December 31,
20X2. The fair value of the shares purchased by Davis Corporation
was $280,000 on December 31, 20X2.
a) How should Davis Corporation account for its
investment in ABC, Inc.?
b) Prepare the 20X2 journal entries made to account
for the investment on Davis
Corporation’s books.
c) Based on your answers to parts (a) and (b), what
is the balance in the “Investment in
ABC, Inc.” account that will appear in the Statement of Financial
Position on December 31, 20X2? Would your answer be any different
if the Financial Accounting Standards Board’s Statement of
Financial Accounting Standards No. 159, “Fair Value Option for
Financial Assets and Financial Liabilities” were applied?
d) Would any of your journal entries in answer to part (b) have been different if Davis Corporation had acquired 40% of the voting common stock on July 1, 20X2?
Solutions
ekkarill92 answered 1 year agoRelated Solutions
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