Question

(#10) Equity Method

On January 1, 2016, Tiger Company purchased 6,720 shares of Eagle Corporation’s common stock when Eagle had 22,400 shares outstanding. On that date, the following information pertained to Eagle:

Eagle Corporation

Balance Sheet

January 1, 2016

1		Book Value	Fair Value
2	Depreciable assets (remaining life, 8 years)	$600,000.00	$620,000.00
3	Other non-depreciable assets	290,000.00	300,000.00
4	Total	$890,000.00	$920,000.00
5	Liabilities	$300,000.00	$330,000.00
6	Shareholders’ equity	590,000.00
7	Total	$890,000.00

During 2016, Eagle earned net income of $120,000 and paid total dividends of $48,000.

Required:

Prepare the journal entries of Tiger related to its share of Eagle’s net income and dividends in 2016.

CHART OF ACCOUNTS
Tiger Company
General Ledger
ASSETS 111 Cash 114 Investment in Available-for-Sale Securities 119 Allowance for Change in Fair Value of Investment 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 189 Accumulated Depreciation 191 Investment in Held-to-Maturity Debt Securities 192 Investment in Stock LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings	REVENUE 411 Sales Revenue 423 Investment Income 431 Interest Income EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense 912 Unrealized Holding Gain/Loss 914 Loss on Impairment

Prepare the journal entries of Tiger on December 31 related to its share of Eagle’s net income and receipt of dividends in 2016. Additional instructions

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1	Dec. 31
2
3	Dec. 31
4
5	Dec. 31
6

Answer 1

Solution:

Journal Entries

Date	Particulars	Debit ($)	Credit ($)
Dec 31,2016	Investment in Eagle's Corporation	$36,000
	Investment Income (120,000*30%)		$36,000
	(being share of income recognized for investment in Associate enterprise - Eagles corporation)
Dec 31, 2016	cash (48,000*30%)	$14,400
	Investment in Eagle's Corporation		$14,400
	(being dividend received from Associate enterprise - Eagles corporation)