Question

Equity Method for Stock Investment On January 4 Year 1, Ferguson Company purchased 112,000 shares of Silva Company directly from one of the founders for a price of $52 per share. Slva has 350,000 shares outstanding, including the Daniels shares. On July 2. Yew 1, Seva paid $25,000 in total dividends to its shareholders. On December 31, Yeart Silva reported a net income of $1.046,000 for the year Ferguson uses the equity method in accounting for investment in Si a. Provide the Ferguson Company journal entries for the transactions involving t estment in Sive Company during Year 1 Year 1 an 4 Year 1, Juy? Year 1, Dec. 31 b. Determine the December 31, Year 1, balance of investment in Siva Company Stock

Answer 1

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