Dragon Corporation acquired a 15% (15,000 shares) interest in the outstanding shares of Slayer Inc. on...
Dragon Corporation acquired a 15% (15,000 shares) interest in the outstanding shares of Slayer Inc. on January 1, 2015 at a cost of $200,000. Dragon Corporation was a public company and comply with the Accounting Standards for public enterprises. Slayer reported net income and made dividend payments to its shareholders as noted below.
Year
Income
Dividends
2015
50,000
20,000
2016 (15,000) 20,000
2017 (40,000) 20,000
The market price of Slayer’s shares on December 31 are $16, $17
and $17 for 2015, 2016 and 2017
respectively.
Required:
(a) Prepare the journal entries that Dragon would make in each year
using the appropriate accounting method.
Homework Answers
Since Dragon Corp has acquired 15% of SlayerInc shares and did not exercise significant influence over Slayer Inc , we have adopted the Fair value metnod for accounting the investment in Slayer Inc
| Date | Particulars | Debit | Credit |
| 1/1/2015 | Investment in Associate | $ 200,000.00 | |
| Bank | $ 200,000.00 | ||
| (To record the acquistion of 15 % 15000 common stock in Slayer Inc | |||
| 12/31/2015 | Bank | $ 3,000.00 | |
| Dividend Income (20000*15%) | $ 3,000.00 | ||
| (To record dividend received from Slayer Inc) | |||
| 12/31/2015 | Investment in Associate | $ 40,000.00 | |
| Fair Value Adjustment 15000shares* (16-13.33) | $ 40,000.00 | ||
| (To record th Investment of Slayer Inc at fair value at year end) | |||
| Date | Particulars | Debit | Credit |
| 12/31/2016 | Bank | $ 3,000.00 | |
| Dividend Income (20000*15%) | $ 3,000.00 | ||
| (To record dividend received from Slayer Inc) | |||
| 12/31/2016 | Investment in Associate | $ 15,000.00 | |
| Fair Value Adjustment 15000shares* (17-16) | $ 15,000.00 | ||
| (To record th Investment of Slayer Inc at fair value at year end) | |||
| Date | Particulars | Debit | Credit |
| 12/31/2017 | Bank | $ 3,000.00 | |
| Dividend Income (20000*15%) | $ 3,000.00 | ||
| (To record dividend received from Slayer Inc) | |||
| 12/31/2017 | No entry requird for fair value adjustment as the share price of $17 in 2016 | ||
| remains the same at the end of 2017 | |||
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