Question

Question 4 Not complete Marked out of 22.00 P Flag question Recording Entries for Equity Investment: Equity Method On January 1, 2020, Allen Corporation purchased 30% of the 60,000 outstanding common shares of Towne Corporation at $15 per share as a long-term investment. On the date of purchase, the book value and the fair value of the net assets of Towne Corporation were equal. During the year, Towne Corporation reported net income of $48,000. Towne Corporation declared and paid cash dividends of $16,000 on December 30, 2020, to shareholders on record. As of December 31, 2020, common shares of Towne Corporation were trading at $20 per share. a. Record the entries in 2020 assuring that Aller Corporation had significant influence over Townie Corporation. Date Account Name Dr. Cr. Jan. 1.2020 To record investment purchase. Dec. 30, 2020 To record receiot of dividends, Dec 31, 2020 To record proportionate share of investee's net income. b. Indicate the effects of this investment on the 2020 income statement and year-end balance sheet. Note: Use a negative sign to indicate a loss, Income Statement 2020 Other Revenues and Gains Balance Sheet, December 31 2 020 Assets Check

Answer 1

Solution a:

S. no.	Account titles	Debit	Credit
01-Jan	Investment in Towne Corporation shares (60000*30%*$15)	$270,000
	Cash		$270,000
30-Dec	Cash ($16000*30%)	$4,800
	Investment in Towne Corporation shares		$4,800
31-Dec	Investment in Towne Corporation shares ($48000*30%)	$14,400
	Equity Income from investment / Investment revenue		$14,400

Solution b:

Income Statement	2020
Other Revenues and Gains:
Investment revenue	$4,800
Balance Sheet, Decemebr 31	2020
Assets:
Investment in Towne Corporation shares (270000+14400-4800)	$279,600