Question

X DIV12 Tommal ! on January 1, Scrusny acquired a za's interest in the common shares of Fedder Entertainment at a cost of $4 249.000. During of its net assets. Prepare the joumal entries required to record the above events assuming that Scrushy uses the equity method year, Fedder reported a net loss of $627.000 and paid na dividends. At acquisition. FedEx's market value equaled the book value account for its investment in Fedder Begin by recording the joumal entry for investment at cost. Do not record the entry for stare of net loss. We will do that in the next step. Record debits first, then credits. Exclude explanations from any journal entries.) Account Investment in Fedder Corporation Cash Entry at Acquisition 4.299,000 4.299.000 Nuw, xepare the journal entry to record the share of met loss Account Entry at Year-end

Answer 1

The equity method is used when the investor company holds more than 20 percent but less than 50 percent of another company's stock. In this case, the investor has significant power, influence and control over the investee's operations.Under the equity method, the initial investment is recorded at cost. Afterward, that value gets adjusted periodically to reflect fluctuations in the investment's income and losses. When an investee reports a certain income, the value of the investor's investment increases by an amount proportional to the percentage of ownership.

In the given case scenario, Scrushy also acquired significant influence in Fedder Entertainment, Hence, equity method will be used.

Journal Entries will be as follows:

Date Account and explanations Debit Credit 2020 $ $ Jan. 01 Investment in Common stock of Fedder Entertainment 4,299,000 Cash 4,299,000 (To record acquisition of common shares)

$156,750 Dec. 31 Loss from investment in company shares $156,750 Investment in Common stock of Fedder Entertainment (To Record Loss on Investment in Equity Investments) Loss = $627,000*25%=$156,750