Question

On January 4, Year 1, Ferguson Company purchased 140,400 shares of Silva Company directly from one of the founders for a price of $28 per share. Silva has 540,000 shares outstanding, including the Daniels shares. On July 2, Year 1, Silva paid $791,000 in total dividends to its shareholders. On December 31, Year 1, Silva reported a net income of $916,000 for the year. Ferguson uses the equity method in accounting for its investment in Silva.

Required:

A.	Provide the Ferguson Company journal entries for the transactions involving its investment in Silva Company during Year 1. Refer to the Chart of Accounts for exact wording of account titles.
B.	Determine the December 31, Year 1, balance of the investment in Silva Company stock account.

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JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4
5
6

Answer 1

Post. Post.Ref. Credit Liabilities Equity Debit 3,931,200 3,931,200 m Requirement 1 Date Description 1 Jan. 4 Investment in Silva Company Stock Cash Jul. 2 Cash (791,000x140,400)/540,000 Investment in Silva Company Stock 5 Dec. 31 Investment in Silva Company Stock Cash (916,000x140,400)/540,000 205,660 Assets 3,931,200 -3,931,200 205,660 -205,660 238,160 -238,160 205,660 238,160 238,160 Requirement 2 Investment in Silva Company Stock, Jan 4 3,931,200 Add: Equity earnings 238,160 Less: Cash dividend received -205,660 Investment in Silva Company Stock, Dec. 31 | 3,963,700 Therefore, the balnce of the investment in Silva Company stock account is 3,963,700.