On January 1, 20X1, Warner Corporation purchased 40% of the common stock of ABC Corporation for...

On January 1, 20X1, Warner Corporation purchased 40% of the common stock of ABC Corporation for $400,000. This purchase gives Warner a significant influence in ABC?s operations. During the year, ABC earned total net income of $200,000 and paid total dividends of $40,000 to common stockholders. The fair market value of the stock at year end is $450,000. Prepare the required 20X1 journal entries for the Warner Corporation?s purchase of stock in ABC Corporation:

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Notes

Equity method is followed as percentage of holding is more than 20% and less than 50%.

Journal Entries

Warner Corporations

Date	Particulars	Folio	Debit($)	Credit($)
1st Jan 20X1	Investment-ABC Corporations A/c Dr. Cash A/c Cr. (Being purchase of 40% of the common stock of ABC Corporations recorded.)		400,000	400,000
20X1	Investment –ABC Corporations A/c Dr. Equity Income-ABC Corporations A/c Cr. *($200,00040%)** (Proportionate share of ABC Corporations’s earnings recorded)		80,000	80,000
20X1	Cash A/c Dr. Investment-ABC Corporations A/c Cr. *(40,00040%)** (Proportionate Share of Dividend received from ABC Corporations)		16,000	16,000

ekkarill92 answered 1 year ago

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