In: Accounting
On January 2, 2017, Hull Corp. paid $516,000 for 24%
(48,000 shares) of the outstanding common stock of Oliver Co. Hull
used the equity method to account for the investment. At the end of
2017, the balance in the investment account was $620,000. On
January 2, 2018, Hull sold 12,000 shares of Oliver stock for $12
per share. For 2018, Oliver reported net income of $118,000 and
paid dividends of $30,000. Required:
(A) Prepare the journal entry to record the sale of the 12,000
shares.
(B) After the sale has been recorded, what is the balance in the
investment account? (C) What percentage of Oliver Co. stock does
Hull own after selling the 12,000 shares?
(D) Because of the sale of stock, Hull can no longer exercise
significant influence over the operations of Oliver. What effect
will this have on Hull’s accounting for the investment?
(E) Prepare Hull’s journal entries related to the investment for
the rest of 2018.