Question

w e cayout Formulasata Review Mew Develop 11A A Calibri (Body) PETU A 25 Wrap Test r on A Custers H62 x fe Ruiz Company puchased 30 per cent of Sim Company's outstanding common stock for $3,000,000 and uses the equity method of accounting, Sim Company reported net income of $ 640,000 for 2018. On 2018 December 31, Sim Company pold cash dividend of $200,000. In 2019, Sim Company incurred a net loss of $ 65,000. Prepare entries to reflect these 40 events on Ruiz Company's books GENERAL JOURNAL POST REF. Date Account/Description Debit Credit

Answer 1

Exercise D

equity method of accounting is the process of treating investments in associate companies . in this method if the company net income increases therefore proportionally investment share also increases and vice versa

In the books of Ruiz company books

At the time of investment

Investment in associate dr --------------3000000

To Bank 3000000

At the time of earning of income by sim company

Investment dr. ----------192000

To post profits 192000

since the company has paid dividend of 200000 but for ruiz company the income would be 30 percent of 200000 i.e 60000

Therefore in the books of ruiz books

bank a/c dr-----------60000

to Investment 60000

At the time when simcompany incurred loss of 65000

Post loss dr.----------19500

To Investment 19500

EXERCISE ZZ

since in the given question it has been specifically written as $120000 were invested at the price of $102 plus brokerage $80.Therefore assuming that the investor has paid 182 for each bond thus no. of bond purchased is 120000/182 =659.34 bonds

Assuming the face value of share to be Rs. 100 therefore total investment at par value is Rs. 65934

DATE	PARTICULARS	DEBIT	CREDIT
JAN. 1, 2018	INVESTMENT IN BONDS	120000
	TO BANK		120000
JUNE 30,2018	Bank (65934*6%*6/12)	1978
	To Interest income		1978

At the time of maturity i.e after 20 years

Bank a/c dr 65934

Loss a/c dr 54066

To investment 120000