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Equity Method for Stock Investment On January 4 Year 1, Ferguson Company purchased 112,000 shares of Silva Company directly f

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Solution a:

Journal Entries - Fergusan Company
Event Date Particulars Debit Credit
1 Year 1, Jan 4 Investment in Silva Company Dr $5,824,000.00
         To Cash $5,824,000.00
(To record investment in Silva)
2 Year 1, July 2 Cash Dr ($325,000*32%) $104,000.00
         To Investment in Silva Company $104,000.00
(To record share of dividend)
3 Year 1, Dec 31 Investment in Silva Company Dr $334,720.00
         To Investment Income ($1,046,000*32%) $334,720.00
(To record share of income in Silva)

solution b:

Balance of investment in Silva company on Dec 31, year 1 = $5,824,000 + $334,720 - $104,000 = $6,054,720

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