On January 1st, 2018, MTU Inc. purchased 25,000 of the 100,000 common shares of Blizzard Co....

On January 1st, 2018, MTU Inc. purchased 25,000 of the 100,000 common shares of Blizzard Co. for $14 per share. Blizzard declared a dividend of $30,000 on June 30th, 2018. On Dec. 31, 2018, Blizzard reported net income of $400,000 and the fair market value of its stock at that point in time was $18 per share.

Prepare all necessary journal entries relating to this investment for MTU Inc.

Expert Solution

	Total Shares	$100,000
	Shares purchased	$25,000
	Investment %	25%
	i.e. Investment in Assocites

A	Fair Value of the stock	$1,800,000
	Value of 25% stock	$450,000	(18,00,000 *25%)

	Consideration paid	$350,000	(25,000 shares*$14)

	Goodwill	$100,000	(450,000-350,000)

B	Journal entries
Date	Accounts & Explaination	Debit $	Credit $
01-01-18	Investment in associate	$350,000		(25,000 shares*$14)
	Cash		$350,000
	(Investment made in associate)

30-06-18	Cash	$30,000
	Investment in associate		$30,000
	(Dividend paid recorded)

31-12-18	Investment in associate	$100,000		(400,000*25%)
	Equity method income in associate		$100,000
	(Net income of associate recorded)

Investment A/c
01-Jan-18	Beg. Bal.	$0
01-Jan-18	Cash	$350,000
30-Jun-18	Dividend received		Cash	$30,000
31-Dec-18	Equity method income in associate	$100,000
31-Dec-18	Ending bal.	$420,000

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