Homework Answers
|
Given |
||
|
Purchase of shares |
3,000.00 |
out of 15,000 shares outstanding |
|
Percentage of shares held |
20% |
|
|
Amount of investment |
80,000.00 |
|
| Amount per share | =80000/3000=26.67/- | |
|
Net income |
25,000.00 |
|
|
Cash dividends paid |
10,000.00 |
|
|
Fair value as on 31st December 2020 |
$25 per share |
|
|
a. Equity Method |
||
|
Purchase of investment |
||
|
Investment in DC Stock A/C Dr |
80,000.00 |
|
|
To Cash A/C |
80,000.00 |
|
|
Net income |
||
|
Investment in DC Stock A/C(25000*20%) Dr |
5,000.00 |
|
|
To Revenue from investment |
5,000.00 |
|
|
Cash Dividends Received |
||
|
Cash A/C (10000*20%) Dr |
2,000.00 |
|
|
To Investment in DC Stock A/c |
2,000.00 |
|
|
For fair value change there is no entry in Equity method |
||
|
b.Fair value method |
||
|
Purchase of investment |
||
|
Available for sale securities A/C Dr |
80,000.00 |
|
|
To Cash A/C |
80,000.00 |
|
|
Net income |
||
|
No entry recorded under Fair value method |
||
|
Cash Dividends Received |
||
|
Cash A/C (10000*20%) Dr |
2,000.00 |
|
|
To Dividend Revenue A/C |
2,000.00 |
|
|
Fair value |
||
|
Unrealised Holdings Gain or Loss Equity(26.67-25) A/C Dr |
5,010.00 |
|
|
To Securities Fair Value Adjustment A/C |
5,010.00 |
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