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15-11 Equity Method for Stock Investment On January 4, Year 1, Ferguson Company purchased 72,000 shares...

15-11 Equity Method for Stock Investment

On January 4, Year 1, Ferguson Company purchased 72,000 shares of Silva Company directly from one of the founders for a price of $48 per share. Silva has 200,000 shares outstanding, including the Daniels shares. On July 2, Year 1, Silva paid $194,000 in total dividends to its shareholders. On December 31, Year 1, Silva reported a net income of $647,000 for the year. Ferguson uses the equity method in accounting for its investment in Silva.

a. Provide the Ferguson Company journal entries for the transactions involving its investment in Silva Company during Year 1.

Year 1 Jan. 4

Year 1 July 2

Year 1 Dec. 31

b. Determine the December 31, Year 1, balance of Investment in Silva Company Stock.

$

Solutions

Expert Solution

Part -(a) Date Description Debit ($) Credit ($)
Jan 4 Investment in Silva Company Stock        3,456,000
     Cash (72,000*48)        3,456,000
(Stock purchased)
July 2 Cash (194,000/200,000)*72,000             69,840
      Investment in Silva Company Stock             69,840
(Dividend received)
Dec 31 Investment in Silva Company Stock           232,920
         Income of Silva Company Stock           232,920
(Net income recognised)
(647,000/200,000)*72,000
Part -(b) Balance of Investment in Silva Company Stock.
Purchase price        3,456,000
Net income           232,920
Dividend           (69,840)
Investment in Silva Company Stock        3,619,080

ekkarill92 answered 2 years ago
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