Question
In: Accounting
Question 1: On January 1 2020 Potter Company purchased 100 of the 1000 shares of Voldomort...
Question 1: On January 1 2020 Potter Company purchased 100 of the 1000 shares of Voldomort Company for $800. Potter has no significant influence over Voldomort
On July 1, 2020 Voldomort declared and paid a $1 per share dividend
On December 31st Voldomort's stock was selling for $9 per share; Voldomort reported income of $4000
On January 1 2021 Potter Company purchased 300 shares of Voldomort Company for $2700. Potter now has two seats on the Voldomort Board of Directors
On March 1, Voldomort had a two for one stock split.
On July 1, Voldomort declared and paid a $1 per share dividend
On December 31st Voldomort reported income of $5000 and its stock was selling for $7 per share
On July 1, 2022 Voldomort announced that it will not pay a dividend in 2022.
On December 31st Voldomort reported a loss of $2000 and its stock was selling for $5 per share
On January 3rd 2023 Potter sold all of its shares in Voldomort at $5.50 per share
| B) FILL IN THE FOLLOWING TABLE | |||||
| 2020 | 2021 | 2022 | |||
| Investment in Voldomort | |||||
| income from investment in Voldomort |
Solutions
Expert Solution
Potter has no significant influence over Voldomort. Thus, this investment accounted using Fair value method.
| Date | Account title | Debit | Credit |
| January 1 2020 | Investment in Voldomort | 800 | |
| Cash | 800 | ||
| (To record acquisition cost of investment.) | |||
| July 1, 2020 | Cash | 100 | |
| Dividend income | 100 | ||
| (To record Dividend Income.) (100*1) | |||
| December 31, 2020 | No Journal entry Required for Net income. | ||
| December 31, 2020 | Fair value investment [Investment in Voldomort] | 100 | |
| Unrealized holding gain - Net income | 100 | ||
| (To record adjustment of Investment in fair value) ((9*100)-800) |
| Answer: | Year 2020 |
| Investment in Voldomort (800+100) | 900 |
| Income from investment in Voldomort (100+100) | 200 |
Potter has significant influence in BOD of Voldomort company. Potter has significant influence over Voldomort. Thus, this investment accounted using Equity value method.
| Date | Account title | Debit | Credit |
| January 1 2021 | Investment in Voldomort | 2,700 | |
| Cash | 2,700 | ||
| (To record Purchase of Investment.) (shares = 100+300=400) (400/1000=40% share) | |||
| March 1, 2021 | No entry for stock split (Shares = 400*2=800) | ||
| July 1, 2021 | Cash | 800 | |
| Investment in Voldomort | 800 | ||
| (To record Dividend Received.) (800*1) | |||
| December 31, 2021 | Investment in Voldomort | 2,000 | |
| Income from Equity Investment | 2,000 | ||
| (To record Income from Equity Investment. ) (5000*40%) | |||
| December 31, 2021 | No Journal entry Required for Fair Value Adjustment. |
| Answer: | Year 2021 |
| Investment in Voldomort ((900+2700)-800+2000) | 4,800 |
| Income from investment in Voldomort | 2,000 |
| Date | Account title | Debit | Credit |
| December 31, 2022 | Loss from Equity Investment | 800 | |
| Investment in Voldomort | 800 | ||
| (To record Income from Equity Investment. ) (2000*40%) |
| Answer: | Year 2022 |
| Investment in Voldomort (4800-800) | 4,000 |
| Income (Loss) from investment in Voldomort | (800) |
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