Homework Answers
| 1. | |||
| a. | |||
| Gregory Corp - Journal entries under equity method | |||
| Date | Account Title and Explanation | Debit | Credit |
| Mar 1,2019 | Investment in Harrison Corp | $184,000 | |
| Cash | $184,000 | ||
| (to record purchase of 8,000 equity shares of Harrison Corp at $ 23 | |||
| per share) | |||
| Nov 1,2019 | Dividend Received | $52,000 | |
| Investment in Harrison Corp | $52,000 | ||
| (to record the dividend received from Harrison Corp.) | |||
| Dec.31,2019 | Equity Income | $5,000 | |
| Investment in Harrison Corp | $5,000 | ||
| (to record the share of loss of Harrison Corp) | |||
| b. | |||
| The total impact on 2019 net income is $ 5,000 decrease. | |||
| c. | |||
| Date | Account Title and Explanation | Debit | Credit |
| Jan 2,2019 | Cash | $26,000 | |
| Gain on Investment in Harrison Corp | $10,125 | ||
| Investment in Harrison Corp | $15,875 | ||
| (to record the sale of 1,000 equity shares of Harrison Corp.) | |||
| Working Notes | |||
| Total equity share in Harrison Corp | $40,000 | ||
| Equity shares purchased by Gregory Corp | 20% | ||
| Equity shares purchased by Gregory Corp | $8,000 | ||
| Purchase Price per share | $23 | ||
| Cost of investment | $184,000 | ||
| Total dividend declared by Harrison Corp | $260,000 | ||
| Share of Gregory Corp | 20% | ||
| Share of Gregory Corp | $52,000 | ||
| Net loss reported by Harrison Corp for 2019 | $25,000 | ||
| Share of Gregory Corp | 20% | ||
| Share of Gregory Corp | $5,000 | ||
| Value of Investment of Gregory Corp on Jan 02 | |||
| Initial purchase value of investment | $184,000 | ||
| Less: Dividend received on investment | ($52,000) | ||
| Less: Share of loss of Harrison Corp | ($5,000) | ||
| Net Value of Investment | $127,000 | ||
| Number of equity shares | 8,000 | ||
| Investment cost per share | $15.875 | ||
| Cost of 1,000 equity shares | $15,875 | ||
| 2 | |||
| a. | |||
| Gregory Corp - Journal entries under fair value method | |||
| Date | Account Title and Explanation | Debit | Credit |
| Mar 1,2019 | Equity Investment | $184,000 | |
| Cash | $184,000 | ||
| (to record purchase of 8,000 equity shares of Harrison Corp at $ 23 | |||
| per share) | |||
| Nov 1,2019 | Cash | $52,000 | |
| Dividend Income | $52,000 | ||
| (to record the dividend received from Harrison Corp.) | |||
| Dec.31,2019 | Unrealized loss on equity investment | $24,000 | |
| Equity Investment | $24,000 | ||
| (to record the equity investment at it's fair market value) | |||
| b. | |||
| The total impact on 2019 net income is $ 24,000 decrease. | |||
| c. | |||
| Date | Account Title and Explanation | Debit | Credit |
| Jan 2,2019 | Cash | $26,000 | |
| Gain on sale of equity investment | $6,000 | ||
| Equity Investment | $20,000 | ||
| (to record the sale of 1,000 equity shares of Harrison Corp.) | |||
| Working notes | |||
| Computation of unrealized loss on investment | |||
| Fair market value per share of Harrison Corp on Dec 31,2019 | $20 | ||
| Purchase price per share of investment in Harrison Corp | $23 | ||
| Unrealized loss per share | ($3) | ||
| Total number of equity shares of Harrison Corp. held by Gregory Corp | $8,000 | ||
| Unrealized loss on investment for Gregory Corp on Dec 31,2019 | ($24,000) | ||
| Computation of gain on sale of investment on Jan 02 | |||
| Sales price of equity shares of Harrison Corp. sold by Gregory Corp. | $26 | ||
|
Cost of one equity share of Harrison
Corp. in the books of Gregory Corp. after making the year end adjustment |
$20 | ||
| Gain per equity share | $6 | ||
| Number of equity shares sold | 1,000 | ||
| Total gain on sale of investment | $6,000 |
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