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Dinkel Concrete acquired the outstanding common stock of Pink paying $1,350,000 for 50,000 shares ston, Inc....

Dinkel Concrete acquired the outstanding common stock of Pink paying $1,350,000 for 50,000 shares ston, Inc. on January 1, 2017, by e Pinkston declared and paid a S0 50 per share cash dividend on December 31, 2017 ePinkston reported net income of $600,000 for the year At December 31, 2017, the market price of Pinkston's common stock was $30 per share. " Dinkel has the intent to sell the Pinkston investment sometime in the future and therefore classifies its investment in Pinkston as available-for-sale. Instructions (a) Assuming Dinkel purchased a 10% interest in Pinkston .>So, ooo s oooo What method should Dinkel use to account for this investment? Cast meth od i. Prepare all the 2017 required journal entries for Dinkel's Concrete investment in Pinkston. ii. ii. At what value is Dinkels investment in Pinkston reported on the December 31, 2017 Balance Sheet? $ (b) Assuming Dinkel purchased a 25% interest in Pinkston i. What method should Dinkel use to account for this investment? ii. Prepare all the 2017 required journal entries for Dinkel's Concrete investment in Pinkston. ii At what value is Dinkels investment in Pinkston reported on the December 31, 2017 Balance Sheet? S

Solutions

Expert Solution

Answer- A:

  1. When the company does not have significance control i.e. investment is less than 20%, then Cost Method of Investment is used.
  2. Journal Entries for the year 2017:

Date

Account Title and Investment

Debit

Credit

Jan-01

Investment in Pinkston Inc.

1350000

    Cash

1350000

(To record the investment made in Pinkston Inc.)

Dec-31

Cash

25000

Dividend Revenue

25000

(To record the dividend received $0.50 per share)

Dec-31

Investment in Pinkston Inc.

150000

   Unrealized Gain on Available-for-sale Securities

150000

(To record the increase in market price Pinkston's share from $27 to $30 per share)
  1. Value of Investment in Pinkston = $ 1,500,000

Answer- B:

  1. When the company have significant control i.e. investment is more than 20%, then Equity method is used to account for investment.
  2. Journal Entries for the year 2017

Date

Account Title and Investment

Debit

Credit

Jan-01

Investment in Pinkston Inc.

1350000

    Cash

1350000

(To record the investment made in Pinkston Inc.)

Dec-31

Investment in Pinkston Inc.

150000

   Equity in Subsidiary's earnings (600,000 * 25%)

150000

(To record the share of income in Pinkston's earnings)

Dec-31

Cash

25000

    Investment in Pinkston Inc.

25000

(To record the dividend received $0.50 per share)

ekkarill92 answered 1 year ago
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