On January 4, 2016, Spandella Company purchased 168,000 shares of Filington Company directly from one of...

On January 4, 2016, Spandella Company purchased 168,000 shares of Filington Company directly from one of the founders for a price of $27 per share. Filington has 560,000 shares outstanding, including the shares acquired by Spandella Company. On July 2, 2016, Filington paid $717,000 in total dividends to its shareholders. On December 31, 2016, Filington reported a net income of $963,000 for the year. Spandella uses the equity method in accounting for its investment in Filington.

Required:

A.	Provide the Spandella Company journal entries for the transactions involving its investment in Filington Company during 2016. Refer to the Chart of Accounts for exact wording of account titles.
B.	Determine the December 31, 2016, balance of the Investment in Filington Company Stock account.

Solutions

Expert Solution

(A)

January 4, 2016

Investment in Filington Company Stock Account $4,536,000

Cash $4,536,000

(Purchased 168,000 shares of Filingtoncompany ( i.e.30% shares) @ 27 per share)

July 2 , 2016

Cash $ 215,100

Investment in Filington Company Stock Account $ 215,100

(30% of $ 717,000 total dividend received)

December 31, 2016

Investment in Filington Company Stock Account $ 288,900

Earning from Investment in Filington Company Stock Account $288,900

(to record 30% net income of Filigton company)

Earning from Investment in Filington Company Stock Account $ 288,900

Income summary $ 288,900

(to close temporary account i.e. earning from long term investment -Filington company)

(B) The balance of Investment in Filingtom company stock account

Debit Credit

4/1/2016 Investment $4,536,000

02/07/2016 Share of dividend $ 215,100

31/12/2016 Share of net income $ 288,900

31/12/2016 Balance $4,609,800

ekkarill92 answered 1 year ago

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