Mitchell Corporation pays $10 million to acquire a 30 percent interest in Turner Corporation’s stock on...

Mitchell Corporation pays $10 million to acquire a 30 percent interest in Turner Corporation’s stock on January 1, 2020, and reports the investment using the equity method. Any basis difference is attributed to goodwill. During 2020, Turner reports net income of $1,000,000, which includes $50,000 in realized and unrealized gains on trading securities. Turner also reports $80,000 in unrealized losses on AFS securities in other comprehensive income, and pays dividends of $250,000 in 2020. Required Prepare Mitchell’s journal entries to record the above events for 2020

Expert Solution

	Journal entries:
2020
1-Jan	Investment in Turner Corporation	Dr	10,000,000
	Cash	Cr		10,000,000
	(To record the investment)

31-Dec	Investment in Turner Corporation	Dr	285,000
	Equity in income of Turner Corporation	Cr		285,000
	(To accrue the earnings of the investee: $950,000*30%)

31-Dec	Investment in Turner Corporation	Dr	15,000
	Equity in income of Turner Corporation	Cr		15,000
	(To record realized and unrealized gains on trading securities of Turner Corporation: $50,000*30%)

31-Dec	Unrealized losses on equity method investments (OCI)	Dr	24,000
	Investment in Turner Corporation	Cr		24,000
	(To report 30% share of Turner Corporation’s unrealized losses on AFS securities)

31-Dec	Cash	Dr	75,000
	Investment in Turner Corporation	Cr		75,000
	(To record receipt of the declared dividend)

31-Dec	Investment in Turner Corporation	Dr	201,000
	Goodwill	Cr		201000

ekkarill92 answered 1 year ago

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