On July 1, 2020, Altuve Inc. purchased 6,000 shares of the outstanding common stock of Trout...

On July 1, 2020, Altuve Inc. purchased 6,000 shares of the outstanding common stock of Trout Corp at a cost of $140,000. Trout had 30,000 shares of outstanding common stock. The total book value and total fair value of Trout's individual net assets on July 1, 2020, are both $700,000. The total fair value of the 30,000 shares of Trout's common stock on December 31, 2020, is $760,000. Both companies have a January through December fiscal year. The following data pertains to Trout Corporation during 2020:

Dividends declared and paid, Jan. 1-Jun. 30	$12,000
Dividends declared and paid, Jul. 1-Dec. 31	$12,000

Net income, January 1-June 30	$14,000
Net income, July 1-December 31	$18,000

Required:

1. Prepare the necessary entries for 2020 under the equity method (other than for the purchase).
2. Prepare any necessary entries for 2020 (other than for the purchase) that would be required if the securities are classified as available for sale.

Solutions

Expert Solution

JOURNAL ENTRIES UNDER EQUITY MENTHOD

DATE	PARTICULAR	DEBIT	CREDIT
	CASH ( $12,000*20%)	$2400
	INVESTMENT IN TROUT CORP		$2,400
	(TO RECORD THE ENTRY OF CASH DIVIDEND RECEIVED AN ACCOUNTOF 6000 SHARES HELD OUT OF 30000 SHARES

	INVESTMENT -TROUT CORP ($18,000*20%)	$3600
	INVESTMENT REVENUE		$3,600
	BEING ENTRY RECORDED FOR THE INVESTMENT REVENUE UNDER THE EQUITY METHOD

2) JOURNAL ENTRIES UNDER THE AVAILABE FOR SALE ARE PROVIDED BELOW

DATE	PARTICULAR	DEBIT	CREDIT
	CASH ( $12,000*20%)	$2400
	DIVIDEND INCOME		$2,400
	(TO RECORD THE ENTRY OF CASH DIVIDEND RECEIVED AN ACCOUNTOF 6000 SHARES HELD OUT OF 30000 SHARES

	FAIR VALUE ADJUSTMENT ( $760,000-$700,000)*20%	$12,000
	IUN REALIZED GAIN OR LOSS (OTHER COMPREHENSIVE INCOME)		$12,000
	BEING ENTRY RECORDED FOR THE INVESTMENT REVENUE UNDER THE EQUITY METHOD

IF ANY DOUBT PLEASE ,EMTIN IN COMMENT

ekkarill92 answered 1 year ago

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