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 |
problems 1 & 2 go together Problem 1 Gregory Corp. acquired 20% of the 40,000 shares...
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