On January 1, 2020, President Corporation purchased 120,000 common shares of Senator Ltd. for $24.50 per...

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On January 1, 2020, President Corporation purchased 120,000 common shares of Senator Ltd. for $24.50 per share. At the time,

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Answer 1

Answer #1

Part A

Method : -		Fair value method
Date	General Journal	Debit	Credit
Jan 1, 2020	Investment in Senator	2,940,000
	Cash		2,940,000
	(To record purchase of Investment.) (120000*24.50)

May 31	Cash	30,000
	Dividend Income		30,000
	(To record dividend received.) (120000*0.25)

Dec 31	No Journal entry Required for Net income.

Dec 31	Unrealized holding Loss -NI (Net income)	330,000
	Fair value Adjustment		330,000
	(To record fair value adjustment.) (120000*2.75)
	(Decrease in share price = 24.50-21.75 = 2.75)

Part B

	Percentage of ownership acquired (120000/600000)		20%
Method : -		Equity method
Date	General Journal	Debit	Credit
Jan 1, 2020	Investment in Senator (associate)	2,940,000
	Cash		2,940,000
	(To record purchase of significant equity investment.) (120000*24.50)

May 31	Cash	30,000
	Investment in Senator (associate)		30,000
	(To record dividend received.) (120000*0.25)

Dec 31	Investment in Senator (associate)	72,000
	Income from Equity Investment		72,000
	(To record income from Equity Investment. ) (360000*20%)

Dec 31	Income from equity investment	1,600
	Investment in Senator (associate)		1,600
	(To record depreciation on undervalued equipment.) (8000*20%)
	(Depreciation = 88000 / 11 = 8000)

Dec 31	No Journal entry Required for Fair Value Adjustment.

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Answer 2

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