Question

On January 4, Year 1, Ferguson Company purchased 480,000 shares of Silva Company directly from one...

On January 4, Year 1, Ferguson Company purchased 480,000 shares of Silva Company directly from one of the founders for a price of $30 per share. Silva has 1,200,000 shares outstanding, including the Daniels shares. On July 2, Year 1, Silva paid $750,000 in total dividends to its shareholders. On December 31, Year 1, Silva reported a net income of $2,000,000 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.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

2

3

4

5

6

CHART OF ACCOUNTS
Ferguson Company
General Ledger
ASSETS
110 Cash
111 Petty Cash
120 Accounts Receivable
121 Allowance for Doubtful Accounts
131 Notes Receivable
132 Interest Receivable
141 Merchandise Inventory
145 Office Supplies
146 Store Supplies
151 Prepaid Insurance
161 Investment in Silva Company Stock
165 Valuation Allowance for Trading Investments
166 Valuation Allowance for Available-for-Sale Investments
181 Land
191 Store Equipment
192 Accumulated Depreciation-Store Equipment
193 Office Equipment
194 Accumulated Depreciation-Office Equipment
LIABILITIES
210 Accounts Payable
221 Notes Payable
231 Interest Payable
241 Salaries Payable
251 Sales Tax Payable
EQUITY
311 Common Stock
312 Paid-In Capital in Excess of Par-Common Stock
321 Preferred Stock
322 Paid-In Capital in Excess of Par-Preferred Stock
331 Treasury Stock
332 Paid-In Capital from Sale of Treasury Stock
340 Retained Earnings
350 Unrealized Gain (Loss) on Available-for-Sale Investments
351 Cash Dividends
352 Stock Dividends
390 Income Summary
REVENUE
410 Sales
611 Interest Revenue
612 Dividend Revenue
621 Income of Silva Company
631 Gain on Sale of Investments
641 Unrealized Gain on Trading Investments
EXPENSES
511 Cost of Merchandise Sold
512 Bad Debt Expense
515 Credit Card Expense
516 Cash Short and Over
520 Salaries Expense
531 Advertising Expense
532 Delivery Expense
533 Repairs Expense
534 Selling Expenses
535 Rent Expense
536 Insurance Expense
537 Office Supplies Expense
538 Store Supplies Expense
561 Depreciation Expense-Store Equipment
562 Depreciation Expense-Office Equipment
590 Miscellaneous Expense
710 Interest Expense
721 Loss of Silva Company
731 Loss on Sale of Investments
741 Unrealized Loss on Trading Investments
0 0
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Answer #1

Solution A:

E G Н 18 19 20 Journal Entries 21 Account title and explanation Inves tment in Silve company stock Dr (480000*$30) Debit Cred

Solution B:

Balance of investment = $14400000 - $300000 + $800000 = $14,900,000

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