Question

On January 1, 2019, Easton Corporation acquired 30% of the outstanding common shares of Feeley Corporation for $140,000, purchased 25% of the outstanding common shares of Holmes Company for $82,500, and obtained significant influence in both situations. On this date, the financial statements of Feeley and Holmes disclosed the following information: 1 Feeley Holmes 2 Current assets $190,000.00 $140,000.00 3 Long-term assets 370,000.00 180,000.00 4 $560,000.00 $320,000.00 5 Liabilities $120,000.00 $90,000.00 6 Common stock (no par) 200,000.00 150,000.00 7 Retained earnings 240,000.00 80,000.00 8 $560,000.00 $320,000.00 During 2019, Feeley reported a loss of $70,000 and paid dividends of $40,000; Holmes reported income of $45,000 and paid dividends of $28,000. On January 1, 2020, Easton sold all the Holmes shares for $90,000. Assume Easton records both investments under the equity method and considers that any difference between each purchase price and the respective book value of the net assets acquired is goodwill. Required: Prepare journal entries to record (1) the purchase of the Feeley and Holmes shares, (2) the recognition of investment income, (3) the receipt of investee dividends, and (4) the sale of the Holmes shares.

Answer 1