Question

In: Accounting

On March 1, 20X8, Current Properties paid $1,000,000 for 25 percent of the shares of Sealy...

On March 1, 20X8, Current Properties paid $1,000,000 for 25 percent of the shares of Sealy Enterprises. Current exerts significant influence over Sealy.

a. Sealy reported earnings of $400,000 during 20X8. Record this journal entry for Current.

b. Sealy paid dividends of $50,000 during October 20X8. Record this journal entry for Current.

c. What amount would Current report on its balance sheet as investment in Sealy?

d. Sealy reported earnings of $440,000 during 20X9. Record this journal entry for Current.

e. Sealy paid dividends of $60,000 during October 20X9. Record this journal entry for Current.

f. On December 30, Current sells its entire investment in Sealy for $1,200,000. Record the journal entry.

Solutions

Expert Solution

a. Earnings of Sealy would not necessitate any journal entry in the books of Current for the following reason :  The earnings of Sealy would either be distributed as dividend to its shareholders or would be reinvested in the Company for future growth. Only when its paid as dividend to its shareholders a entry would be passed on the books of Current Properties.

Further, since Current exercises significant influence over Sealy, the books of Sealy would be consolidated with Current Properties and the portion of earnings pertaining to the other shareholders would be shown as a minority interest in the consolidated financial statement.

b. Bank A/c ...................................... Dr $ 50,000

To, Dividend Income from Sealy................. Cr $ 50000

c. The investment would be recorded as cost i.e $1000,000

d. No entry for the same reason as mentioned in answer (a)

e. Bank A/c..........................................Dr $ 60,000

To, Dividend Income from Sealy......Cr $ 60000

f. Journal entry in the books of Current on sale of investment :

Bank A/c ......................................Dr $1200000

To, Investment in Sealy................Cr $ 1 000,000

To, profit on sale of investment....Cr $ 200,000

ekkarill92 answered 2 years ago
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