Question

In: Accounting

Heidebrecht Design acquired 30% of the outstanding common stock of Quayle Company on January 1, 2017,...

Heidebrecht Design acquired 30% of the outstanding common stock of Quayle Company on January 1, 2017, by paying $610,500 for the 40,700 shares. Quayle declared and paid $0.40 per share cash dividends on March 15, June 15, September 15, and December 15, 2017. Quayle reported net income of $315,000 for the year. At December 31, 2017, the market price of Quayle common stock was $26 per share.

Prepare the journal entries for Heidebrecht Design for 2017 assuming Heidebrecht Design cannot exercise significant influence over Quayle. (Use the cost method and assume that Quayle common stock should be classified as a trading security.)

Prepare the journal entries for Heidebrecht Design for 2017, assuming Heidebrecht Design can exercise significant influence over Quayle. Use the equity method

Indicate the balance sheet and income statement account balances at December 31, 2017, under each method of accounting.

Solutions

Expert Solution

1. Cost method-Trading security

Date Account Titles and Explanation Debit Credit
Jan. 1, 2017 Investment in Quayle Company 610500
Cash 610500
(To record purchase of investment)
Mar. 15, 2017 Cash ($0.40 x 40700) 16280
Dividend revenue 16280
(To records dividend received on investment)
Jun. 15, 2017 Cash ($0.40 x 40700) 16280
Dividend revenue 16280
(To records dividend received on investment)
Sep. 15, 2017 Cash ($0.40 x 40700) 16280
Dividend revenue 16280
(To records dividend received on investment)
Dec. 15, 2017 Cash ($0.40 x 40700) 16280
Dividend revenue 16280
(To records dividend received on investment)
Dec. 31, 2017 Investment in Quayle Company 447700
Unrealized gain on trading security 447700
[($26 x 40700) - $610500]
(To record trading security at fair value)
December 31, 2017 account balances:
Balance Sheet:
Investment in Quayle Company (40700 x $26) 1058200
Income Statement:
Dividend revenue ($16280 x 4) 65120
Unrealized gain on trading security 447700

2. Equity method-Significant influence

Date Account Titles and Explanation Debit Credit
Jan. 1, 2017 Investment in Quayle Company 610500
Cash 610500
(To record purchase of investment)
Mar. 15, 2017 Cash ($0.40 x 40700) 16280
Investment in Quayle Company 16280
(To record dividend received on investment)
Jun. 15, 2017 Cash ($0.40 x 40700) 16280
Investment in Quayle Company 16280
(To record dividend received on investment)
Sep. 15, 2017 Cash ($0.40 x 40700) 16280
Investment in Quayle Company 16280
(To record dividend received on investment)
Dec. 15, 2017 Cash ($0.40 x 40700) 16280
Investment in Quayle Company 16280
(To record dividend received on investment)
Dec. 31, 2017 Investment in Quayle Company 94500
Investment income ($315000 x 30%) 94500
(To record share in Quayle Company's net income)
December 31, 2017 account balances:
Balance Sheet:
Investment in Quayle Company [$610500 - ($16280 x 4) + $94500] 639880
Income Statement:
Investment income 94500

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Heidebrecht Design acquired 20% of the outstanding common stock of Quayle Company on January 1, 2017,
Heidebrecht Design acquired 20% of the outstanding common stock of Quayle Company on January 1, 2017, by paying $800,000 for the 30,000 shares. Quayle declared and paid $0.30 per share cash dividends on March 15, June 15, September 15, and December 15, 2017. Quayle reported net income of $320,000 for the year. At December 31, 2017, the market price of Quayle common stock was $34 per share.   Instructions (a) Prepare the journal entries for Heidebrecht Design for 2017 assuming...
Heidebrecht Design acquired 30% of the outstanding common stock of Blossom Company on January 1, 2020,...
Heidebrecht Design acquired 30% of the outstanding common stock of Blossom Company on January 1, 2020, by paying $844,000 for the 42,200 shares. Blossom declared and paid $0.20 per share cash dividends on March 15, June 15, September 15, and December 15, 2020. Blossom reported net income of $381,500 for the year. At December 31, 2020, the market price of Blossom common stock was $26 per share. Prepare the journal entries for Heidebrecht Design for 2020 assuming Heidebrecht Design cannot...
Fesler Inc. acquired all of the outstanding common stock of Pickett Company on January 1, 2017....
Fesler Inc. acquired all of the outstanding common stock of Pickett Company on January 1, 2017. Annual amortization of $22,000 resulted from this transaction. On the date of the acquisition, Fesler reported retained earnings of $520,000 while Pickett reported a $240,000 balance for retained earnings. Fesler reported net income of $100,000 in 2017 and $68,000 in 2018, and paid dividends of $25,000 in dividends each year. Pickett reported net income of $24,000 in 2017 and $36,000 in 2018, and paid...
On January 2, 2017, SPU Corporation acquired 30% of the outstanding voting common stock of Brough...
On January 2, 2017, SPU Corporation acquired 30% of the outstanding voting common stock of Brough Company for $335,000. This investment enabled SPU to exercise significant influence over Brough.     The book value of the acquired shares was $315,000 (the book value of Brough Co was $1,050,000). The excess of cost over book value was attributed to a building that was undervalued on Brough’s balance sheet and that had a remaining useful life of 10 years.       For the year...
Writing Wellman Company acquired 30% of the outstanding common stock of Grinwold Inc. on January 1,...
Writing Wellman Company acquired 30% of the outstanding common stock of Grinwold Inc. on January 1, 2022, by paying $1,800,000 for 60,000 shares. Grinwold declared and paid a $0.50 per share cash dividend on June 30 and again on December 31, 2022. Grinwold reported a net income of $800,000 for the year. a. Total dividend revenue for 2022 $60,000 b. Revenue from stock investments $240,000 Instructions a. Prepare the journal entries for Wellman Company for 2022, assuming Wellman cannot exercise...
1)Presents Inc. acquired all of the outstanding common stock of Santa Co. on January 1, 2017,...
1)Presents Inc. acquired all of the outstanding common stock of Santa Co. on January 1, 2017, for $257,000. Annual amortization of $19,000 resulted from this acquisition. Presents reported net income of $70,000 in 2017 and $50,000 in 2018 and paid $22,000 in dividends each year. Santa reported net income of $40,000 in 2017 and $47,000 in 2018 and paid $10,000 in dividends each year. On the consolidated financial statements for 2017, a)what amount should have been shown for Equity in...
Miller Corporation acquired 30% of the outstanding common stock of Crowell Corporation for $160,000 on January...
Miller Corporation acquired 30% of the outstanding common stock of Crowell Corporation for $160,000 on January 1, 2018, and obtained significant influence. The purchase price of the shares was equal to their book value. During 2018, the following information is available for Crowell: Mar. 31 Declared and paid a cash dividend of $50,000. June 30 Reported semiannual earnings of $120,000 for the first half of 2018. Sept. 30 Declared and paid a cash dividend of $50,000. Dec. 31 Reported semiannual...
Miller Corporation acquired 30% of the outstanding common stock of Crowell Corporation for $160,000 on January...
Miller Corporation acquired 30% of the outstanding common stock of Crowell Corporation for $160,000 on January 1, 2018, and obtained significant influence. The purchase price of the shares was equal to their book value. During 2018, the following information is available for Crowell: Mar. 31 Declared and paid a cash dividend of $50,000. June 30 Reported semiannual earnings of $120,000 for the first half of 2018. Sept. 30 Declared and paid a cash dividend of $50,000. Dec. 31 Reported semiannual...
In January 2017, Domingo, Inc., acquired 20 percent of the outstanding common stock of Martes, Inc.,...
In January 2017, Domingo, Inc., acquired 20 percent of the outstanding common stock of Martes, Inc., for $761,000. This investment gave Domingo the ability to exercise significant influence over Martes, whose balance sheet on that date showed total assets of $4,095,000 with liabilities of $935,000. Any excess of cost over book value of the investment was attributed to a patent having a remaining useful life of 10 years. In 2017, Martes reported net income of $232,000. In 2018, Martes reported...
On January 1, 2017, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing,...
On January 1, 2017, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,155,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $840,000, retained earnings of $390,000, and a noncontrolling interest fair value of $495,000. Corgan attributed the excess of fair value over Smashing's book value to various covenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing.Net...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT