Question

Simi Company sells 40% of the shares it owns in Milburn Company for $600,000. The Equity Investment relating to these shares is $550,000 on the date of sale. The joumal entry to record the sale assuming Simi keeps control over Milburn includes: a. APIC, credit, $55,000 b. Equity investment, credit, $600,000 c. APIC, debit, $50,000 d. APIC

Answer 1

The journal entry to record the sale assuming Simi keeps control over Milburn includes:

Cash $600,000

Equity Investment in Milburn $550,000

APIC $50,000 (debit)

Explanation:

Simi Company sells 40% of the shares it owns in Milburn Company for $600,000. The Equity Investment relating to these shares is $550,000 on the date of sale. The difference between the sale price and the Equity Investment is the amount allocated to Additional Paid-in Capital (APIC), which is $50,000 in this case. Therefore, the journal entry to record the sale includes a debit to APIC for $50,000, a credit to Equity Investment in Milburn for $550,000, and a credit to Cash for $600,000. This entry reflects the fact that Simi retains control over Milburn even after selling a portion of its shares.