Question
In: Accounting
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
1)
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
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