Question

4. value: 10.00 points On January 1, 2013, Plano Company acquired 8 percent (28,000 shares) of the outstanding voting shares of the Sumter Company for $476,000, an amount equal to Sumter's underlying book and fair value. Sumter declares and pays a cash dividend to its stockholders each year of $175,000 on September 15. Sumter reported net income of $350,000 in 2013, $421,200 in 2014, $469,400 in 2015, and $445,300 in 2016. Each income figure can be assumed to have been earned evenly throughout its respective year. In addition, the fair value of these 28,000 shares was indeterminate, and therefore the investment account remained at cost. On January 1, 2015, Plano purchased an additional 32 percent (112,000 shares) of Sumter for $2,245,750 in cash and began to use the equity method. This price represented a $60,000 payment in er's underlying net assets. Plano was willing to make this extra payment because of a recently developed patent held by Sumter with a 15-year remaining life. All other assets were considered appropriately valued on Sumter's books. On July 1, 2016, Plano sold 10 percent (35,000 shares) of Sumter's outstanding shares for $980,000 in cash. Although it sold this interest, Plano maintained the ability to significantly influence Sumter's decision- making process. Assume that Plano uses a weighted average costing system. Prepare the journal entries for Plano for the years of 2013 through 2016. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to the nearest whole dollar.)

Answer 1

S.No.	Date	Particulars	Journal Folio	Debit	Credit
1	1-01-2013	Sumter a/c		$476000
		To Equity share holders			$476000
		(Being Sumter purchased equity shareholder shares)
2.	1-01-2013	Retained Earnings a/c		$175000
		To Dividend Payable			$175000
		(Being Dividend payable in Cash)
3	15-09-2013	Sales a/c		$1685900
		To Accounts receivable			$1685900
4	01-01-2015	Purchase a/c		$2245750
		To cash			$2245750
		(Being Plano purchased 32000 outstanding shares sold by Sumter in Cash)
5.	01-01-2015	Plano a/c		$2245750
		Equity shareholder			$2245750
		(Being Plano purchased 32000 outstanding equity shares sold by Sumter)
5.	01-01-2016	Purchase a/c		$980000
		To Cash			$980000
		(Being outstanding shares purchased in Cash)
6	01-06-2016	Sumter a/c		$980000
		To Plano			$980000
		(Being outstanding 35000 shares sold by Plano to Sumter in Cash)