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. |
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JOURNAL
ACCOUNTING EQUATION
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General Ledger | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Solution A:
Solution B:
Balance of investment = $14400000 - $300000 + $800000 = $14,900,000
On January 4, Year 1, Ferguson Company purchased 480,000 shares of Silva Company directly from one...
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