Question

On January 1st 2019 Yoda Company made two purchases: 1) purchased 100 of the 1000 shares of Vadar Company for $12,000.Yoda has no influence on Vadar. 2) purchased 300 of the 1000 shares of Skywalker Company for $6000.Yoda has influence over Skywalker all of Skywalker's assets have a book value = to market value except for a light-saber which has a $5000 book value and a $9000 market value. This light-saber has a 10 year life and no salvage (Skywalker uses straight line depreciation) 6 December 1st 2019 Vadar declares and pays a $1 per share dividend 7 December 2nd 2019 Skywalker declares and pays a $0.50 per share dividend 8 December 31, 2019 Vadar's stock is selling for $125 per share. Vadar reported income of $20,000 9 December 31, 2019 Skywalker's stock is selling for $22 per share. Skywalker reported a loss of $2000 10 December 1st 2020 Vadar declares and pays a $0.50 per share dividend 11 December 1st 2020 Skywalker declares and pays a $0.25 per share dividend 12 December 31, 2020 Vadar's stock is selling for $123 per share. Vadar reports income of $15000 13 December 31, 2020 Skywalker's stock is selling for $24 per share. Skywalker reports income of $5000 14 January 3rd 2021 Yoda purchases 100 more shares of Vadar Company for $124 per share. Yoda now has influence over Vadar Vadar's assets have a book value equal to market value except for land. 16 December 1, 2021 Vadar announces it is not paying any dividends this year 17 December 2, 2021 Skywalker declares and pays a $0.25 per share dividend 18 December 31, 2021 Vadar's stock is selling for $127 per share. Vadar reports income of $13,000 19 December 31, 2021 Skywalker's stock is selling for $29 per share. Skywalker reports income of $7000 20 January 5th 2022 Yoda sells all of its Vadar stock at $126 per share 21 January 6th 2022 Yoda sells all of its Skywalker stock at $29.50 per share 22 REQUIRED: 23 24 1) MAKE ALL THE NECESSARY JOURNAL ENTRIES FOR YODA FROM 2019 THROUGH 2022 (DON'T FORGET THE PURCHASE 25 OF THE STOCK) 27 2) FILL IN THE TABLE: 2019 2020 2021 2022 29 INVESTMENT IN VADAR 30 INVESTMENT IN SKYWALKER 31 INCOME IMPACT OF VADAR 32 INCOME IMPACT OF SKYWALKER

Answer 1

1) Journal entries in the books of Yoda Company

	Journal
Date	Particulars	L.F.	Amount (Debit) ($)	Amount (Credit) ($)
2019
1-Jan	Investment in Vadar co. shares a/c      Dr.		12000
	Investment in Skywalker co. shares a/c      Dr.		6000
	To Bank A/c                         Cr.			18000
	(Being 100 shares of Vadar co. and 300 shares of Skywalker co. purchased)
1-Dec	Bank A/c                                                                   Dr.		100
	To dividend received A/c          Cr.			100
	(Being dividend $1 per share declared and received from Vadar Co.)
2-Dec	Dividend received A/c                                 Dr.		150
	To Investment in Skywalker Co. shares a/c   Cr.			150
	(Being dividend $ 0.50 per share paid by Skywalker Co.)
31-Dec	Depreciation A/c                                               Dr.		500
	To Accumulated Depreciation A/c			500
	(Being depreciation on Skywalker's asset)
31-Dec	Income Summary A/c                                           Dr.		2000
	To Net Loss A/c           Cr.			2000
	(Being net loss incurred by Skywalk Co.)
2020
1-Dec	Bank A/c                                                                   Dr.		50
	To dividend received a/c                  Cr.			50
	(Being dividend $ 0.50 per share paid by Vadar Co.)
1-Dec	Dividend received a/c                                       Dr.		75
	To investment in Skywalker Co. shares a/c			75
	(Being dividend $ 0.25 per share received from Skywalker Co.)
31-Dec	Revenue A/c                                                           Dr.		5000
	To Income Summary A/c                                    Cr.			5000
	(Being net profit reported by Skywalker Co.)
2021
3-Jan	Investment in Vadar co. shares a/c      Dr.		12400
	To Bank A/c                         Cr.			12400
	(Being 100 shares of Vadar co. purchased)
2-Dec	Dividend received a/c                                       Dr.		75
	To investment in Skywalker Co. shares a/c			75
	(Being dividend $ 0.25 per share received from Skywalker Co.)
31-Dec	Revenue A/c                                                           Dr.		13000
	To Income Summary A/c                                    Cr.			13000
	(Being net profit reported by Vadar Co.)
31-Dec	Revenue A/c                                                           Dr.		7000
	To Income Summary A/c                                    Cr.			7000
	(Being net profit reported by Skywalker Co.)
2022
5-Jan	Bank A/c                                                                   Dr.		34050
	To Investment in Vadar Co. shares A/c       Cr.			25200
	To Investment in Skywalker Co. shares A/c			8850
	(Being 200 shares of Vadar Co. sold at $126 per share and 300 shares of Skywalker Co. sold at $ 29.5 per share)

Working Notes :

1. Since Yoda Co. has influence over Skywalker Co., Skywalker is a subsidiary company to Parent co Yoda. Hence, dividend received from Skywalker is treated as a reduction in investment in Skywalker Co. as per equity method. Also, depeciation, income & loss of Skywalker Co. for respective periods are recorded in the books of Yoda Corp. due to same.

2. Depreciation under Straight line method = (Actual cost of asset or book value - residual value ) / Useful life of asset

Therefore, Depreciation = $5000/10 = $ 500

ANS .2.

	2019	2020	2021	2022
Investment in Vadar	12000.00	12000.00	37400.00	0.00
Investment in Skywalker	3850.00	8775.00	15700.00	0.00
Income Impact of Vadar	Nil	Nil	13000.00	Nil
Income Impact of Skywalker	-2000.00	5000.00	7000.00	Nil

Working notes :

1. Investment in Vadar remains $ 12,000 for 2019 ans 2020. In 2021, $ 12,400 is additionally invested and Yoda gets influence on Vadar, so Vadar's income is added in Yoda's investment in Vadar. Therefore, 12000 +12400 + 13000 = $ 37,400. In 2022, all shares are sold. Therefore, investment at the end of 2022 is Nil.

2. For Skywalker, in 2019 amount invested is $ 6,000 but it is reduced by dividend paid by Skywalker $ 150 and loss reported by Skywalker $ 2000 (Since Yoda has influence over Skywalker). So, investment at end of year = $ 3850. Similarly, for 2020 year end, investment = 3850 - 75 + 5000 = $ 8775 and for 2021, it is 8775 - 75 + 7000 = $ 15,700 and for 2022 it is Nil since all shares sold.

3. Income impact is reported when the company has influence over the other company.