Heidebrecht Design acquired 30% of the outstanding common stock of Pharoah Company on January 1, 2020,...
Heidebrecht Design acquired 30% of the outstanding common stock of Pharoah Company on January 1, 2020, by paying $681,000 for the 45,400 shares. Pharoah declared and paid $0.30 per share cash dividends on March 15, June 15, September 15, and December 15, 2020. Pharoah reported net income of $398,500 for the year. At December 31, 2020, the market price of Pharoah common stock was $26 per share.
Prepare the journal entries for Heidebrecht Design for 2020 assuming Heidebrecht Design cannot exercise significant influence over Pharoah. (Record journal entries in the order presented in the problem. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)
Prepare the journal entries for Heidebrecht Design for 2020, assuming Heidebrecht Design can exercise significant influence over Pharoah. Use the equity method. (Record journal entries in the order presented in the problem. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)
Indicate the balance sheet and income statement account balances
at December 31, 2020, under each method of accounting.
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Cost |
Equity |
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| Stock Investments | $
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$
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| Dividend revenue |
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| Unrealized gain income |
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| Revenue from stock investments |
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Homework Answers
(a)
January 1, 2020
Dr Investment in Pharoh Company $681,000
Cr Cash $681,000
March 15, June 15, September 15, and December 15, 2020 (same entry, 4 times)
Dr Cash $13,620
Cr Dividend revenue $13,620
being dividend received
Dr Investment in Pharoh Company $499,400
Cr Fair value gain $499,400
being gain on measuring investment at market value
(b)
January 1, 2020
Dr Investment in Pharoh Company $681,000
Cr Cash $681,000
March 15, June 15, September 15, and December 15, 2020 (same entry, 4 times)
Dr Cash $13,620
Cr Investment in Pharoh Company $13,620
being dividend received
Dr Investment in Pharoh Company $119,550
Cr Share of results in associate company $119,550
(c)
Cost method
Investment in Pharoh Company $1,180,400 (balance sheet)
Fair value gain on investments $499,400 (income statement)
Dividend revenue $54,480 (income statement)
Equity method
Share of results in associate company $119,550 (income statement)
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