In: Accounting
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.
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 |