Calamari purchased 35% of Squid company for $900,000 in cash January 1,2018. On the date of...

Calamari purchased 35% of Squid company for $900,000 in cash January 1,2018. On the date of purchase, Squids book value was 2,000,000. Excess cost over book value amounting to $30,000 is due to undervalued equipment and is to be amortized over 4 years. the rest is due to goodwill.

Journalize the following for 2018 on the books for Calamari, assuming Calamari uses the equity method:

A. Squid reported a total net income of $800,000. Journalize the recording of the correct income on the books of Calamari.

B. Total dividend paid by squid amounted to $100,000

C. The market value of Calamari investment in Squid at year end had changed to $960,000

D. Calamari the sold half of it investment in Squid, losing significant influence for $450,000

Expert Solution

	Net Income	$ 800,000
	Less: Excess Amortization	7,500	(30000/4)	Here it is assumed that 30000 excess is for over all book value of 2milion not Calamari, since not specified. Please report in comment any answer mismatch due to this assumption.
	Net income after amortization	792,500
	Calamari share at 35%	$ 277,375

No	General Journal	Debit	Credit
1	Invetsment in Squid Company	$ 277,375
	Equity in Squid's Income		$ 277,375

2	Cash	$ 35,000		(100000 x 35%)
	Invetsment in Squid Company		$ 35,000

3	Cash	$ 450,000
	Loss on sale of investment	$ 121,188
	Invetsment in Squid Company		$ 571,188	*

	*(900000+277375-35000)

ekkarill92 answered 1 year ago

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