Question

Equity Method for Stock Investment On January 4, 20Y6, Spandella Company purchased 112,000 shares of Filington Company directly from one of the founders for a price of $46 per share. Filington has 400,000 shares outstanding, including the Spandella shares. On July 2, 20Y6, Filington paid $302,000 in total dividends to its shareholders. On December 31, 20Y6, Filington reported a net income of $1,046,000 for the year. Spandella uses the equity method in accounting for its investment in Filington a· Journalize the Spandella Inc. entries for the transactions involving its investment in Filington Company during 20Y6 20Y6 Jan. 4 20Y6 July 2 20Y6 Dec. 31 b. Determine the December 31, 20Y6, balance of the investment in Filington Company stock account.

Answer 1

Solution:-

percentage share =112,000/400,000=				28%
a)	Date	Account titles and Explanations					debit	Credit
	4-Jan	investment in Filington company					5,152,000
		cash						5,152,000
		(112,000*46)
	2-Jul	Cash					84,560
		investment in Filington company						84,560
		(302,000*28%)
	31-Dec	Investment in Filington company					292,880
		investment income						292,880
		(1,046,000*28%)
b)		Investment in Filington company stock account					5,360,320