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Fredo, Inc., purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2018. Sonny recognized a...

Fredo, Inc., purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2018. Sonny recognized a total of $480,000 net income during 2018, paid $38,000 of dividends to Fredo during 2018, and at December 31, 2018, the market value of the Sonny investment increased to $1,048,000. Required: Prepare the journal entries necessary to account for the Sonny investment, assuming that Fredo (1) lacks significant influence or (2) has significant influence over the operating and financial policies of the investee.

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Answer #1
Answer 1.
Journal Entry
Date Particulars Dr. Amt. Cr. Amt.
1 Investment in Sonny - Common Stock    1,000,000.00
Cash    1,000,000.00
(record the purchase o Sonny Common Stock)
2 Cash          38000.00
Investment Revenue          38000.00
(record the dividend recd from Sonny)
3 Fair Value Adjustment          48000.00
Unrealized Holding Gain / Loss - OCI          48000.00
(Record the fair value adjustments)
4 No entry for share of Net Profit Earned by Sonny
Answer 2.
Journal Entry
Date Particulars Dr. Amt. Cr. Amt.
1 Investment in Sonny - Common Stock    1,000,000.00
Cash    1,000,000.00
(record the purchase o Sonny Common Stock)
2 Cash          38000.00
Investment in Sonny - Common Stock          38000.00
(record the dividend received)
3 Investment in Sonny - Common Stock          48000.00
Equity Income in Sonny          48000.00
(record the Net Income share of florist)
4 No entry for Fair Value Adjustment

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