Question

Suppose that on January ?6, 2018?, Westfall Motors paid $ 450 comma 000 comma 000 for its 30 % investment in Power Motors. Westfall has significant influence over Power after the purchase. Assume Power earned net income of $ 50 comma 000 comma 000 and paid cash dividends of $ 15 comma 000 comma 000 to all outstanding stockholders during 2018. ?(Assume all outstanding stock is voting? stock.) Read the requirements LOADING.... Requirement 1. What method should Westfall Motors use to account for the investment in Power ?Motors? Give your reasoning. Westfall Motors should use the ? available-for-sale consolidation equity held-to-maturity method to account for its investment in Power Motors because the investment ? creates a parent-subsidiary relationship between Westfall Motors and Power Motors. in Power is a debt security that Westfall Motors plans to hold to maturity. represents a 30% ownership of Power Motors and Westfall Motors has significant influence over Power Motors. Requirement 2. Journalize all required 2018 transactions related to Westfall ?Motors's Power investment. Include an explanation for each entry. ?(Record debits? first, then credits. Select the explanation on the last line of the journal entry table. If no entry is? required, select? "No entry? required" on the first line of the Accounts and Explanation column and leave the remaining cells? blank.) Westfall Motors paid $ 450 comma 000 comma 000 for its 30 % investment in Power Motors. Date Accounts and Explanation Debit Credit 2018 Jan. 6 Power paid cash dividends of $ 15 comma 000 comma 000 to all outstanding shareholders during 2018. Date Accounts and Explanation Debit Credit 2018 Power earned net income of $ 50 comma 000 comma 000 during 2018. Date Accounts and Explanation Debit Credit 2018 Requirement 3. Post all 2018 transactions to the investment? T-account. What is its balance after all the transactions are? posted? How would this balance be classified on the balance sheet dated December? 31, 2018?? Begin by selecting the investment account and posting the 2018 transactions to the investment? T-account. Calculate the balance after all the transactions are posted. How would this balance be classified on the balance sheet dated December? 31, 2018?? This balance would be classified as ? a current asset a current liability a long-term asset a long-term liability accumulated other comprehensive income on the balance sheet dated December? 31, 2018.

Answer 1

Transaction 1 :January 6, 2018, Westfall Motors paid $ 450,000,000 for its 30 % investment in Power Motors.
Under, equity held to maturity method the investment in Power Motors is accounted.
Journal Entry:
Date	Accounts Titles	Debit $	Credit$
Jan 6,2018	Equity investment in Power	450m
	Cash		450m
	(equity investment in the 30% share in Power Motors)
Balance Sheet abstract:
Assets:	$ ( in million)
Cash	-450
Long term investment:
Equity investment in Power	450
Transaction 2 :Jan. 6 Power paid cash dividends of $ 15,000,000 to all outstanding shareholders during 2018.
Journal Entry:
Date	Accounts Titles	Debit $	Credit$
jan 6 2018	Cash	4.5m		15m*30%
	Equity investment in Power		4.5m
	(being cash dividend received on 30% share in Power)
Balance Sheet abstract:
Assets:	$ ( in million)
Cash	4.5
Long term investment:
Equity investment in Power	-4.5
Transaction 3 :Power earned net income of $ 50,000,000 during 2018.
Journal Entry:
Date	Accounts Titles	Debit $	Credit$
Dec 31 2018	Equity investment in Power	15m		50m*30%
	Equity income in Power		15m
	(30% income in power booked under equity investment)
Balance Sheet abstract:
Assets:	$ ( in million)
Long term investment:
Equity investment in Power	15
Liabilities and SH equity:
Retained earning	15