Question

On 1/1/2018, Diebergs market invested $200m in the equity of Maul's BBQ sauce, which represented a 25% ownership stake. In 2018, Maul's had net income of $10 and declared dividends totaling $10.

1) Record all transaction that Diebergs Co would record in 2018 related to its invested in Maul's under the

a Equity method

b. Cost method

c Fair value method

Answer 1

a) recording transactions under Equity method

1. Dr. Investment in associates 200

Cr. Cash 200

( invested $200m in BBQsauce)

2. Dr. Cash 2.5

Cr. Investment in associates 2.5

( received dividend from BBQ 10 × 25% = 2.5)

3. Dr. Investment in associates 2.5

Cr. Investment revenue 2.5

(Recognised income of 10×25% =2.5

from BBQ SAUCE )

__________________________________________________

b) recording transactions under Cost method

1. Dr. Investment in securities 200

Cr. Cash 200

( invested $ 200m in BBQSAUCE )

2. Dr. Cash 2.5

Cr. Dividend revenue 2.5

( received dividend from BBQ Sauce

10×25% = 2.5)

3. No entry for net income in cost method

____________________________________________________

c) Recording transaction under Fair value method

1. Dr. Securities available for sale 200

Cr. Cash 200

( invested $ 200 m in BBQ sauce )

2. Dr. Cash 2.5

Cr. Dividend revenue 2.5

( received dividend from BBQ sauce

10×25%=2.5)

3. No entry for net income in fairvalue method

____________________________________________________

Note :-

( in the above transactions it was assumed that dividend was cash dividends and it was received. So, I have given cash entries in the required methods )