Question

On January 1, 2017, Pennington Corporation purchased 30% of the common shares of Edwards Company for $180,000. During the year, Edwards earned net income of $80,000 and paid dividends of $20,000. Prepare the entries for Pennington to record the purchase and any additional entries related to this investment in Edwards Company in 2017.

Answer 1

Date Account Title Debit Credit

12/31/2017 Equity Investment $180,000

Cash $180,000

Date Account Title Debit Credit

12/31/2017 Cash $6,000

Equity Investment $6,000

Working:

Cash received as dividend = 30% * 20,000 dividend

= $6,000

Date Account Title Debit Credit

12/31/2017 Equity Investments $24,000

Investment Revenue $24,000

Working:

Company is entitled to 30% of income:

= 30% * 80,000

= $24,000