Question

I. Prep pays $105,000 for 80% interest in Snap on January 1 2006, when Snap stockholders' equity consists of S60,000 capital stock and $30,000 retained earnings. The excess of investment cost is allocated to patents with the 15 Years Amortization. During the year Snap's net income is $30,000 and Pay dividend $15,000. a. Calculation the income from Snap and Journal Entry? b. Dividends from Snap and Journal Entry c. Investment is Snap during the year and Journal Entry d. Minority interest expense and Journal Entry e. What is the minority interest balance at the end of the year and Journal Entry f. What is Invest balance of Prep in Snap at the end of the year and Journal Entry

Answer 1

Statement showing notes to the calculations.

	Cost of Acquisition for prep		$105,000
Less:	Equity share of snap	$60,000 X 80%	($48,000)
	Retained Earnings of snap	$30,000 X 80%	($24,000)
	Access of Investment cost over Book value		$33,000
Amount of Goodwill to be amortized over 15 years          = $33000/15
			$2,200
	Calculation of Investment value at the end of the year
	1st January, 2016		$105,000
less:	Dividend received from Snap	$15,000 X 80%	($12,000)
			$93,000
Add:	Net Income during the year	$30,000 X 80%	$24,000
	Amount of Investment at the end of the year		$117,000

A. Calculation is shown in above table and journal entries are as follows;

For, Dividend received from Snap
Date	Account title and explanation		Debit	Credit
	Cash A/c                  Dr.		$12,000
	To investment in Snap			$12,000
For, Net Income received from Snap
Date	Account title and explanation		Debit	Credit
	Investment in snap A/C      Dr.		$24,000
	To Reserve or surplus A/C			$24,000

C. Investment in snap during the year is shown in above table and journal entries are as follows;

Date	Account title and explanation		Debit	Credit
1	Investment in snap A/C      Dr.		$105,000
	To cash or Bank A/C			$105,000

	Calculation of minority interest
	Equity share of snap	$60,000 X 20%	$12,000
	Retained Earnings of snap	$30,000 X 20%	$6,000
	Total Minority Interest		$18,000
less:	Dividend received from Snap	$15,000 X 20%	($3,000)
Add:	Net Income during the year	$30,000 X 20%	$6,000
	Total Minority Interest at the end of the year		$21,000

minority interest will not appear on any of the entity's financial statement. it will appear only in consolidated financial statement.