Question

As a long-term investment, Painters' Equipment Company purchased 20% of AMC Supplies inc's 540,000 shares for $620,000 at the beginning of the fiscal year of both companies. On the purchase date, the fair value and book value of AMC's net assets were equal. During the year, AMC earned net income of $390,000 and distributed cash dividends of 20 cents per share. At year-end, the fair value of the shares is $659,000. Required: 1. Assume no significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year 2. Assume significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Assume no significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year. (If no entry is required for a transaction/event, select "No journal entry required in the first account field.) View transaction list Journal entry worksheet Record the purchase of AMC Supplies shares for $620,000 as a long-term Investment Note: Enter debits before credits Event General Journal Debit Credit

Answer 1

solution Account title & explanation Debit Gedit Investment in Ame supplies share 62000D cash [ To record the purchase of Investment in AMC supplies shares] 21600 cash Investment revenue [ 540000* 20%X0.203 [ To record the dividend received] 21600 39000 39000 Fair value adjustment Net unrealized holding gains & losses (659000 - 620000) I [ To record the adjusting entry of un realized gain or losses] No entry is required for Net 1. Income for Ame supples

IS.NO Account titles & Explanation Debit - Credit 620000 620000 Investment in AMC Supplies Shares cash [To record the purchase of Investment in AMC supplecz shares Investment in Ame supplies share | 78000 78000 Investment revenue [ 390000 x 2014.] [ To record the net Income] 21600 21600 cash Investment in Ame Supplies Shares [ 540000 X 200% X0.20] [ To record the dividend received] No entry for fair value.