On January 4, Year 1, Larsen Corp purchased 10,000 shares of Warner Corp for $119,000 plus...
On January 4, Year 1, Larsen Corp purchased 10,000 shares of Warner Corp for $119,000 plus a broker's fee of $2,000. Warner Corp has 50,000 common shares outstanding and it is presumed the Larsen Corp will have a significant influence over Warner Corp. During Year 1 and Year 2, Warner Corp declared and paid cash dividends of $0.85 per share. Warner Corp's profit was $72,000 and $67,000 for Year 1 and year 2, respectively. The January 12, Year 3 entry to record the sale of 5,000 shares of Warner Corp for $65,000 should be
Homework Answers
| Percentage of ownership | 20% | =10000/50000 |
| Purchase cost of investment | 121000 | =119000+2000 |
| Add: Share of net profit | 27800 | =(72000+67000)*20% |
| Less: Dividends received | -17000 | =10000*0.85*2 |
| Carrying value of investment | 131800 | |
| Carrying value of investment sold | 65900 | =131800*5000/10000 |
| Loss on sale of investment | 900 | =65900-65000 |
| The January 12, Year 3 entry to record the sale of 5,000 shares of Warner Corp for $65,000 should be: |
| Debit Cash $65,000 ; debit Loss on sale of investment $900 ; credit Long Term investments $65,900 |
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