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On January 1, 2020, Charles Corporation purchased 40% of the common shares of River Company for...

On January 1, 2020, Charles Corporation purchased 40% of the common shares of River Company for $400,000. During the year, River earned net income of $120,000 and paid dividends of $40,000.

Prepare the entries for Charles to record the purchase and any additional entries related to this investment in River Company in 2020.

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Expert Solution

Account Titles and Explanation Debit Credit
Investment in River Company $400,000
          Cash $400,000
(To record purchase of stock.)
Cash                                                 [Total dividend x 40% = $40,000 x 40%] $16,000
        Investment in River Company    $16,000
(To record receipt of dividends)
Investment in River Company        [Total net income x 40% = $120,000 x 40%] $48,000
         Income from River Company $48,000
(To record revenue)

ekkarill92 answered 1 year ago
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