Not sure if my answers are correct this far.
This is what I was given. I started to fill it out, but realized I really did not know what I was doing. Disregard the information put into the journal entries as they were just my attempts to figure out what I needed to do.
Homework Answers
Journal entries:
| Date | Account title and explanation | Debit | Credit |
| Jan. 1 | Investment in Tahit Ltd. | $719,950 | |
| Cash | $719,950 | ||
| [To record investment in Tahiti Ltd.] | |||
| Jul. 31 | Cash [121,000 x $0.35] | $42,350 | |
| Investment in Tahit Ltd. | $42,350 | ||
| [To record receipt of dividends] | |||
| Dec. 31 | Investment in Tahit Ltd. | $300,000 | |
| Investment income ($1,200,000 x 25%) | $300,000 | ||
| [To record investment income] | |||
| Investment income (29,600/5) | $5,920 | ||
| Investment in Tahit Ltd | $5,920 | ||
| [To record amortization of fair value difference] |
Investment in Tahil Ltd. at December 31,2018:
| Investment in Tahiti Ltd. | |
| Jan.1 | $719,950 |
| Jul.31 | ($42,350) |
| Dec.31 | $300,000 |
| Dec.31 | ($5,920) |
| Ending Balance | $971,680 |
Explanation:
It has a significant influence. So that method used is "Equity method".
Under equity method 'Investment account' is decreased by 'dividends received' and increased by 'Share in net income'.
Given that at the time of acquisition fair value of the assets are under valued. So that under valued amount should be amortized over the life of the asset and that should be reduced from 'investment account'.
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