1/ Madison Corporation purchased 40% of Jay Corporation for $460,000 on January 1. On June 20...

1/ Madison Corporation purchased 40% of Jay Corporation for $460,000 on January 1. On June 20 of the same year, Jay Corporation declared total cash dividends of $115,000. At year-end, Jay Corporation reported net income of $575,000. The balance in Madison Corporation's Long-Term Investment-Jay Corporation account as of December 31 should be:

Multiple Choice

$736,000.

$644,000.

$851,000.

$276,000.

$460,000.

2/ McVeigh Corp. owns 40% of Gondor Company's common stock. McVeigh received $61,600 in cash dividends from Gondor. The entry to record this transaction should include a:

Multiple Choice

Debit to Dividends for $154,000.

Credit to Long-Term Investments for $61,600.

Debit to Dividend Revenue for $61,600.

Credit to Long-Term Investments for $154,000.

Credit to Cash for $61,600.

Expert Solution

Answer to Part 1
Value of Investment	460000
Less: Pre Acquisition Dividend (115000*40%)	-46000
Add: Share of Net Income (575000*40%)	230000
Balance of Long term Investment	644000

* We have to reduce the amount of pre acquisition dividend from the value of investments.

** As we are holding 40% of share capital, we have to follow the equity method and share of net income shall be added to value of investment.


Therefore, the right answer is option (b) $ 644000.


Answer to part 2
As Mc Veigh corp is holding 40% of share capital, the amount of dividend received will be shown as reduction from the value of investment. That means, Investments will have debit balance and any reduction of investment will be recorded as crediting the investment account.





Therefore, the right answer is option (b) Credit to long term investments for $ 61600

ekkarill92 answered 1 year ago

37/ Madison Corporation purchased 40% of Jay Corporation for $400,000 on January 1. On June 20...

37/ Madison Corporation purchased 40% of Jay Corporation for $400,000 on January 1. On June 20 of the same year, Jay Corporation declared total cash dividends of $100,000. At year-end, Jay Corporation reported net income of $500,000. The balance in Madison Corporation's Long-Term Investment-Jay Corporation account as of December 31 should be: Multiple Choice $640,000. $240,000. $740,000. $400,000. $560,000. 38/Segmental Manufacturing owns 30% of Glesson Corp. stock. Glesson pays a total of $51,500 in cash dividends for the period. Segmental's...

Prudence Corporation purchased a machine for $460,000 on September 1, 2019, by paying 20% down payment...

Prudence Corporation purchased a machine for $460,000 on September 1, 2019, by paying 20% down payment in cash and for the balance amount signed a 6%, 10-month note payable for the balance amount. Interest and principle will be paid back together at the end of the note. Prepare journal entries to record: the purchase of the delivery truck, the adjusting journal entry to record the accrued interest on December 31, and the payment of the note at maturity along with...

Sox Corporation purchased a 40% interest in Hack Corporation for $1,975,000 on January 1, 2016. On...

Sox Corporation purchased a 40% interest in Hack Corporation for $1,975,000 on January 1, 2016. On November 1, 2016, Hack declared and paid $2.9 million in dividends. On December 31, Hack reported a net loss of $4.6 million for the year. What amount of loss should Sox report on its income statement for 2016 relative to its investment in Hack?

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:

1. On January 1, 2016, TXU Europe Corporation purchased 40% of the outstanding stock of Alberta...

1. On January 1, 2016, TXU Europe Corporation purchased 40% of the outstanding stock of Alberta Power Pool Corporation for $800,000. Net income reported by Alberta Power Pool Corporation for 2016 and 2017 was, respectively, $100,000 and $125,000. Dividends paid by Alberta Power Pool Corporation during 2016 and 2017 were, respectively, $60,000 and $75,000. The long−term investment will appear on TXU Europe Corporation's December 31, 2017, balance sheet at: A.$864,000 B.$836,000 C.$746,000 D.$890,000 2.Retail Energy Corporation paid $1,300,000 on January...

On January 1, Kingman Corporation purchased a 40% equity in Lewis Company for $360,000. At December...

On January 1, Kingman Corporation purchased a 40% equity in Lewis Company for $360,000. At December 31, Lewis declared and paid a $40,000 cash dividend and reported net income of $98,000. Prepare the necessary journal entries for Kingman Corporation.

On January 1, 2020, Charles Corporation purchased 40% of the common shares of River Company for...

On January 1, 2020, Charles Corporation purchased 40% of the common shares of River Company for $400,000. During the year, River earned net income of $120,000 and paid dividends of $40,000. Prepare the entries for Charles to record the purchase and any additional entries related to this investment in River Company in 2020.

1.On January 1, 2016, TXU Europe Corporation purchased 40% of the outstanding stock of Alberta Power...

1.On January 1, 2016, TXU Europe Corporation purchased 40% of the outstanding stock of Alberta Power Pool Corporation for $800,000. Net income reported by Alberta Power Pool Corporation for 2016 and 2017 was, respectively, $100,000 and $125,000. Dividends paid by Alberta Power Pool Corporation during 2016 and 2017 were, respectively, $60,000 and $75,000. The long−term investment will appear on TXU Europe Corporation's December 31, 2016, balance sheet at: A.$800,000 B.$776,000 C.$816,000 D.$840,000 2. The adjusting entry for investments at fair...

On January 1, 2020, Fisher Corporation purchased 40 percent (80,000 shares) of the common stock of...

On January 1, 2020, Fisher Corporation purchased 40 percent (80,000 shares) of the common stock of Bowden, Inc., for $978,000 in cash and began to use the equity method for the investment. The price paid represented a $66,000 payment in excess of the book value of Fisher's share of Bowden's underlying net assets. Fisher was willing to make this extra payment because of a recently developed patent held by Bowden with a 15-year remaining life. All other assets were considered...

On January 1, 2017, Fisher Corporation purchased 40 percent (80,000 shares) of the common stock of...

On January 1, 2017, Fisher Corporation purchased 40 percent (80,000 shares) of the common stock of Bowden, Inc. for $976,000 in cash and began to use the equity method for the investment. The price paid represented a $60,000 payment in excess of the book value of Fisher's share of Bowden's underlying net assets. Fisher was willing to make this extra payment because of a recently developed patent held by Bowden with a 15-year remaining life. All other assets were considered...

Question