Question

Problem 1 The following selected transactions relate to investment activities of Startup Corp during 2018. Startup Corp's fiscal year ends on December 31. No investments were held by Startup Corp on December 31, 2017. anuary 1, 2018 Acquired 30% DT Corporation shares at $60,000. On this date, DT Corporation's book value of net assets is $120,000 and fair value of net assets is $150,000. The difference between the fair value and book value is due to a building with useful life of 20 years. December 31, 2018 DT Corporation reports net income of $3,000. The market value of Startup Corp's 30% holding of DT Corporation shares is $80,000. July 1, 2019 DT Corporation pays cash dividends of $900. December 31, 2019 DT Corporation reports net loss of $6,000. The market value of Startup Corp's 30% holding of DT Corporation shares is $60,000. Startup Corp sells all its shares of DT Corporation on this date. 1. Prepare journal entries for the investment in DT Corporation shares for each date. (10 points).

Answer 1

Since this is investments for Startup. following are the journal entries:

Date Transactlons Dr. Amount Cr. Amount 01.01.2018 Acquisition of Shares Investments in DT Corporation Ac Dr 60000 To Startup Bank A/c c 960000 Investment in DT copr Ac To Retained Earnings (For Fair valuation of investment on 31.12 2018 e S80000) 31.12 2018 Dr 20000 20000 01.01.2019 | ロ vidend Receipt Retained Earnings A/c Dr To Investment in DT Copr A/c The entry will be reversed since the fair valuation is for 20000 20000 balance sheet date only) 01.07.2019 ǐdend Receipt Bank Ac Dr 900 To Income from Dividends 900 31.12 2018 Dividend Receipt Bank Ac/ Dr 60000 To Investments in DT corporation A/c 960000