Question

Sofie Company buys stock in Nut Corporation in cash on January 1, 2020, and reports the investment as having no significant influence.
The percentage of investment	15%	Amount paid	$6,000,000
On January 1, 2022 Sofie Company makes the following additional investment in Nut Corporation and changes to the equity method of reporting for this investment:
The additional percentage of investment	25%	Additional amount paid	$15,000,000
	December 31, 2020	December 31, 2021
Fair value of the 15% investment is as follows:	$6,200,000	$6,450,000
Nut Corporation reported the following amounts for the years:
			2020	2021	2022
Net Income			$150,000	$200,000	$250,000
Cash dividends (Paid at year-end)			$50,000	$80,000	$100,000
Additional information: Nut Corporation reported no comprehensive income and any basis difference is attributed to goodwill.
Required: You should use cell references in providing a number or preparing a calculations by referencing the data above. Prepare you answer in the solution area provided.
A. Prepare all the journal entries that Sofie Company would record for the investment in Nut Corporation for 2020, 2021, and 2022. Journal entries should be set up in good form.
You need to provide dates, use appropriate account titles, and include an explanation below each journal entry.
B. Develop a table showing the calculation of what the amount Sofie Corporation will report on the balance sheet for the investment in Nut Corporation on December 31, 2022.
Solution:

Answer 1

Solution:

	Journal Entries
Date	Account Titles and Explanation	Debit	Credit
1-Jan-20	Investment in Nut Corporation	$6,000,000
	Cash		$6,000,000
	(To record investment in Nut corporation 15%)
31-Dec-20	Cash (50000*15%)	$7,500
	Dividend Income		$7,500
	(To record dividend income received from nut corp.)
31-Dec-20	Investment in Nut Corporation	$200,000
	Unrealized gain on fair valuation		$200,000
	(To record increase in fair value of investment
31-Dec-21	Cash	$12,000
	Dividend income		$12,000
	(To record dividend income received from nut crop.)
31-Dec-21	Investment in Nut Corporation	$250,000
	Unrealized gain on fair valuation		$250,000
	(To record increase in fair value in investment)
1-Jan-22	Investment in Nut Corporation	$15,000,000
	Cash		$15,000,000
	(To record investment in Nut corporation 25%)
31-Dec-22	Cash (100000*40%)	$40,000
	Dividend Income		$40,000
	(To record dividend income received from nut crop.)
31-Dec-22	Investment in Nut Corporation	$100,000
	Income from Nut Coporation(250000*40%)		$100,000