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Homework Answers
2b. Shareholding in Company T = 10500/35000 = 30%.
Since the shareholding in the investee company is greater than 20%, Company P will be deemed to have significant influence over the investee Company T and the equity method will be used for recording the investment transactions.
| No. | Transaction | General Journal | Debit | Credit |
| 1 | a. | Investments | 252000 | |
| Cash (10500 x $24) | 252000 | |||
| 2 | b. | Investments (30% x $50000) | 15000 | |
| Equity in investee earnings | 15000 | |||
| 3 | c1 | Dividends receivable | 6450 | |
| Investments (30% x $21500) | 6450 | |||
| 4 | c2 | Cash | 6450 | |
| Dividends receivable | 6450 | |||
| 5 | d. | No journal entry required |
3a.
| COMPANY P | ||
| Current Year | ||
| DOLLAR AMOUNTS | ||
| 4900 shares | 10500 shares | |
| Balance Sheet (noncurrent assets): | ||
| Investments | 102900 | 260550 |
4900 shares: 4900 x $21 = $102900
10500 shares: $252000 + $15000 - $6450 = $260550
3b.
| COMPANY P | ||
| Current Year | ||
| DOLLAR AMOUNTS | ||
| 4900 shares | 10500 shares | |
| Income Statement (Other items): | ||
| Dividend revenue | 3010 | |
| Unrealized loss | -14700 | |
| Equity in investee earnings | 15000 | |
Dividend revenue: $21500 x 4900/35000 = $3010
Unrealized loss: 4900 x ($24 - $21) = $14700
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